Lee Chang-yong: "Growth and Inflation Trade-off Limits Monetary Policy Operation... Need to Maintain Balance"

On the 21st, Calls for Expanded Role and Change of the Bank of Korea in Inaugural Address

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jung] "Since the conflicting relationship between growth and inflation is further constraining the conduct of monetary policy, it is time to operate policies with precise balance."

Lee Chang-yong, the newly appointed Governor of the Bank of Korea, stated in his inaugural speech on the 21st, "The prolonged Russia-Ukraine war, the faster-than-expected normalization of monetary policy by the U.S. Federal Reserve, and the possibility of economic slowdown in China due to the spread of the Omicron variant are all aggravating the difficulties of monetary policy."

Governor Lee began by saying, "The Korean economy is now at a turning point," and expressed concern that "it is a difficult time to predict whether our highly externally dependent economy can overcome the challenges of transitioning to a new normal after the COVID-19 crisis and take a leap forward, or whether it will fall into a long-term low-growth phase as aging and declining productivity trends continue."

He emphasized, "At this crossroads, it is time to boldly change the framework of economic policy so that our economy can make the right choice," and added, "We must promote qualitative growth more creatively, led by the private sector."

He mentioned the urgency of diversifying exports and supply chains. Governor Lee pointed out, "Efforts to reallocate resources through structural reforms must be expedited," and warned, "We must not make the mistake of hesitating to switch to a new horse while being trapped by past successes, even though the racehorse is tired and no longer as strong as before."

He also identified the issues of income inequality and deepening polarization arising from the structural reform process as challenges to be addressed. Governor Lee said, "Excessive polarization will intensify social conflicts and damage our growth potential, so solutions to this are also necessary."

He expressed concern about the rapidly increasing household and government debt. He stated, "We know from past experience that continuous expansion could lead to a bubble burst, causing enormous social costs," and added, "As the Bank of Korea, which pursues macroeconomic stability, we cannot ignore the smooth landing of the debt issue."

In particular, Governor Lee called for an expansion and change in the role of the Bank of Korea as a central bank. He emphasized, "Considering the medium- to long-term challenges facing our economy, our responsibility cannot be confined to the framework of monetary policy," and said, "To prevent our economy from falling into the swamp of long-term low growth, monetary policy alone is not enough; fiscal policy and structural reforms must be implemented together." He explained that the more difficult the economic conditions become, the greater the role of the central bank inevitably grows.

Governor Lee mentioned three fences that the Bank of Korea must overcome. He said, "We ourselves must overcome the fences of expertise, communication with the outside, and domestic boundaries," and stressed, "Although there are concerns about the central bank's independence in communicating with the government, constructive dialogue with the government, market, and private institutions is essential to solve the challenges of our times."

He then urged the staff, saying, "Let us strengthen the Bank of Korea's role not only as the main actor of monetary and credit policy but also as the undisputed 'best domestic think tank' that understands our economy well," and added, "Let us all become one team so that in the future, when we look back on this time, we can take pride in the fact that the Bank of Korea led the Korean economy on the right path at a turning point."

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