[2020 National Assembly Audit] Lee Ju-yeol "Inflation, Embarrassed by Large Gap from Target"

[Asia Economy Reporter Kim Eun-byeol] On the 16th, Lee Ju-yeol, Governor of the Bank of Korea, stated, "The gap between the inflation target and the current rate is so large that it is quite troublesome," but added, "Whether to adopt the Average Inflation Targeting (AIT) system introduced by the U.S. Federal Reserve (Fed) requires further observation of its establishment before making a decision."

Governor Lee made these remarks during the Bank of Korea's audit at the National Assembly's Planning and Finance Committee, responding to a question from Yoon Hee-sook, a member of the People Power Party, who pointed out that "the consumer price inflation rate is far from meeting the inflation stabilization target (2.0%)."

The consumer price inflation rate averaged around 3% annually from 2010 to 2012, closely aligning with the inflation stabilization target midpoint (3% during 2010-2012). From 2013 to 2016, it fluctuated at levels below the target, and in 2017, the consumer price inflation rate recorded 1.9%, gradually declining thereafter. Particularly since last year, it has significantly fallen short of the inflation stabilization target. In fact, the target has not been met since 2013.

The AIT system introduced by the Fed sets the target as the average inflation over a specified period. Given the prolonged period of low inflation recently, the policy was changed under the judgment that monetary policy could be conducted by considering the average inflation over a certain period. Simply put, it means allowing a more accommodative monetary policy even if inflation temporarily rises in the short term.

However, AIT has drawbacks, such as ambiguity regarding the target period and the necessity to allow inflation to rise excessively if the period is fixed.

Governor Lee said, "There is no guarantee that the Fed's AIT will be established or how many countries will respond to it," and added, "We are currently conducting continuous research internally on monetary policy and low inflation."

In the audit materials submitted to the Planning and Finance Committee, the Bank of Korea also stated, “Although global discussions on whether to continue maintaining the inflation stabilization target system are ongoing, there is still no consensus on an alternative policy framework.”

The Bank of Korea stated, "We are closely monitoring discussions on the restructuring of major countries' monetary policy frameworks and are comprehensively referring to international discussions and operational cases of major central banks to seek a monetary policy framework that can overcome limitations." The Bank of Korea is promoting the "Improvement of the Monetary Policy Operating System" as one of the tasks in the 'Bank of Korea Mid-to-Long Term Development Strategy (BOK 2030).'

As part of these efforts, the Bank of Korea is advancing the "Improvement of the Monetary Policy Operating System," one of the tasks in the 'Bank of Korea Mid-to-Long Term Development Strategy (BOK 2030).'

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