US Zero Interest Rate Until 2022, What About Korea's Monetary Easing Policy?... Lee Ju-yeol "Until Economic Recovery Shows"

Governor Lee Ju-yeol's 70th Anniversary Founding Speech of Bank of Korea
"Accommodative Monetary Policy Until Economic Recovery Is Evident"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] On the 12th, Lee Ju-yeol, Governor of the Bank of Korea, stated, "It is necessary to operate monetary policy accommodatively until our economy is expected to recover from the crisis." This means maintaining the base interest rate, currently at an all-time low of 0.50% per annum, until the economic impact caused by COVID-19 is alleviated. He also added that if necessary, policy tools other than interest rates will be appropriately utilized.

In his speech commemorating the 70th anniversary of the Bank of Korea's founding, Governor Lee said, "While the basic principle is that the central bank exercises its power to issue currency, which is the people's property, with caution, the argument that it should take a more proactive role as a 'crisis fighter' is gaining strength."

He further emphasized, "To stabilize financial markets and maintain smooth credit flow, policy tools other than interest rates will be appropriately used when necessary," and added, "We will closely cooperate with the government to maximize policy effectiveness." As central banks worldwide have implemented accommodative monetary policies amid the COVID-19 pandemic, discussions about the scope of central bank roles have been ongoing, and this statement reaffirms the need for proactive action during crises.

However, Governor Lee added, "Even while operating monetary policy accommodatively, we must not lower our guard against the possibility of accumulating financial imbalances in the medium to long term." This is due to concerns that excessive liquidity could lead to increased loan sizes and asset price bubbles. He said, "We have repeatedly seen cases where the accumulation of financial imbalances has led to crises," and stated, "We must prepare in advance to promptly overcome this crisis with preemptive measures and, once the crisis subsides, to gradually normalize exceptional measures."

He also stressed the need to engage in intense deliberations to reach social consensus on how far to accept demands for quasi-fiscal roles of the central bank, how to secure their legitimacy, and how to establish principles for market intervention.

Meanwhile, Governor Lee emphasized, "Unless we move beyond the past growth paradigm that relies on physical capital, we will not be able to escape low growth even after overcoming the crisis," and added, "The best way to prepare for the post-COVID era is to establish a productivity-driven growth system based on knowledge and technology by actively fostering private autonomy and creativity."

He also expressed concerns that "as deglobalization accelerates due to this crisis, the global value chain (GVC) may weaken, and the free trade order could be significantly shaken." Furthermore, he noted that the COVID-19 crisis has accelerated the Fourth Industrial Revolution and intensified global competition, which could exacerbate imbalances in various economic sectors such as the dual structure of the labor market, income polarization, and debt accumulation.

Given the ongoing low interest rate and low inflation environment, he also expressed intentions to consider ways to improve the inflation targeting system. Governor Lee said, "We need to monitor the discussion trends of major central banks on how to improve the monetary policy operating framework and advance related research." On the 9th, the Bank of Korea announced 'BOK 2030,' which includes improvements to the monetary policy operating framework, research on central bank digital currency (CBDC), enhancement of research capabilities, and innovation of management and personnel systems.

This content was produced with the assistance of AI translation services.