Bank of Korea: "Will Actively Participate in National Assembly Discussions on Adding Employment Stability Responsibilities"

Bank of Korea February Interim National Assembly Work Status Report

Lee Ju-yeol, Governor of the Bank of Korea [Photo by Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea (BOK) has clearly expressed its intention to actively participate in National Assembly discussions regarding the expansion of the Bank's role, including the addition of a 'responsibility for employment stability.'

On the 23rd, during the February extraordinary session of the National Assembly's Planning and Finance Committee status report, the BOK stated, "We will thoroughly review key issues related to the expansion of the Bank's role, such as the addition of the responsibility for employment stability, and actively participate in related discussions in the National Assembly." Although the necessity of adding the employment stability responsibility was mentioned in this year's monetary credit policy operation direction and BOK Governor Lee Ju-yeol's New Year's address, this statement was made in a stronger tone to emphasize active participation in National Assembly discussions. Therefore, it is expected that discussions on the amendment of the Bank of Korea Act in the National Assembly will also proceed quickly.

Since last year, due to the significant employment shock caused by COVID-19 and calls for the BOK to make efforts toward employment recovery, several amendment bills reflecting the 'employment stability' goal in Article 1 of the Bank of Korea Act have been proposed in the National Assembly. Proposals have come from Ryu Seong-gul, the opposition party whip of the Planning and Finance Committee from the People Power Party, as well as Kim Kyung-hyup and Park Kwang-on from the Democratic Party. Although the details vary slightly depending on the bill, the atmosphere in the National Assembly is leaning toward adding 'employment stability' to Article 1 of the Bank of Korea Act regardless of party lines.

However, concerns have been raised that since the BOK already targets price stability and financial stability, adding employment stability could cause conflicts, and it is uncertain how effective the BOK's monetary policy would be in improving employment conditions. The BOK stated, "We will comprehensively collect opinions from external experts and others."

With the continuation of the ultra-low interest rate environment, the BOK also announced it will study improvements to the limitations of its price stability target system, which aims for '2%.' The BOK newly specified in the general principles of monetary credit policy operation the 'efforts to stabilize financial markets,' stating, "In the event of financial instability, the transmission channels of monetary policy may be constrained, and macroeconomic stability may be impaired; therefore, efforts will be made to stabilize financial markets and restore intermediary functions." It plans to pay closer attention to the risks of financial imbalances, such as the inflow of funds into asset markets and increases in household and corporate debt, amid continued accommodative financial conditions.

Meanwhile, the BOK assessed that although expectations for global economic recovery are growing with the progress of COVID-19 vaccinations, uncertainties remain high. The BOK stated, "With the progress of COVID-19 vaccinations and continued large-scale economic stimulus in the United States and other countries, asset prices such as stock prices are rising, and market inflation expectations are increasing," but also noted, "There are coexisting views that economic recovery will not be easy for some time due to the high uncertainty related to the spread of infectious diseases."

In particular, the emergence of COVID-19 variants, uncertainties about vaccination patterns, and the timing of herd immunity formation suggest that it may take a considerable period for COVID-19 to subside. Even if the spread of infectious diseases is controlled within a specific country, differences between countries may lead to continued restrictions on international travel.

Regarding the domestic economy, a moderate recovery trend continues centered on exports, but the number of employed persons has significantly decreased, especially in face-to-face service industries. The BOK predicted, "The employment situation is expected to improve slowly as the service sector's sluggishness continues." Last year, exports, mainly of semiconductors and other IT products, rapidly recovered, resulting in a current account surplus of $75.3 billion, but this year, with rising oil prices and a reduced surplus in the goods balance, the current account surplus is expected to decrease compared to last year.

The BOK stated, "We will operate monetary policy accommodatively to support the recovery of the domestic economy," and added, "In this process, we will closely monitor the macroeconomic impact of the progression of COVID-19 and the vaccine distribution situation." Furthermore, as liquidity has increased and there has been a concentration of funds into asset markets such as stocks and real estate, the BOK said, "We will pay closer attention to changes in financial stability risks, including capital flows into asset markets and increases in household debt."

Meanwhile, as discussions on the fourth round of disaster relief payments have made an additional supplementary budget (추경) inevitable, causing government bond yields to rise, the BOK also announced it will purchase government bonds depending on market conditions. The BOK stated, "If signs of instability such as increased interest rate volatility appear, we will implement market stabilization measures such as announcing the scale and schedule of government bond purchases." However, the BOK maintains a negative stance on direct purchases of government bonds due to concerns that it could lead to monetization of government debt.

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