'Prices Are the Most Urgent'... Lee Chang-yong "Big Step, Decision Based on Market Reaction" (Summary)

Meeting of Heads of Fiscal, Monetary, and Financial Authorities
Seeking Countermeasures to US Giant Step
Increased Possibility of BOK Big Step Next Month

Lee Bok-hyun, Governor of the Financial Supervisory Service (left), Choi Sang-mok, Senior Secretary for Economic Affairs, Choo Kyung-ho, Deputy Prime Minister and Minister of Economy and Finance, Lee Chang-yong, Governor of the Bank of Korea, and Kim So-young, Vice Chairman of the Financial Services Commission, are posing for a commemorative photo at the Emergency Macroeconomic Financial Meeting held on the 16th at the Bankers' Hall in Jung-gu, Seoul. Photo by Moon Ho-nam munonam@

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, Bank of Korea Governor Lee Chang-yong, and other heads of fiscal, monetary, and financial authorities gathered on the 16th and shared the recognition that "inflation is the most urgent issue." Following the U.S. Federal Reserve's (Fed) 'giant step' of raising the benchmark interest rate by 0.75 percentage points at once, expectations are growing that the Bank of Korea will also take a 'big step' (a 0.5 percentage point increase in the benchmark interest rate) for the first time next month.

Deputy Prime Minister Choo, Governor Lee, Financial Services Commission Vice Chairman Kim So-young, Financial Supervisory Service Governor Lee Bok-hyun, and Presidential Office Economic Secretary Choi Sang-mok held an emergency macroeconomic and financial meeting on the morning of the same day at the Bankers' Hall in Jung-gu, Seoul, to discuss countermeasures following the Fed's Federal Open Market Committee (FOMC) meeting the previous night, which raised the benchmark interest rate by 0.75 percentage points for the first time in 28 years.

After the meeting, Deputy Prime Minister Choo said, "We share the common recognition that price stability is the most urgent issue and have decided to respond with full efforts," adding, "Along with monetary policy operations that place greater emphasis on inflation, we will strengthen multifaceted response efforts such as reducing cost burdens on the supply side and preventing the spread of inflation expectations." Given the soaring inflation due to the U.S.'s rapid tightening and the Ukraine crisis, as well as increased volatility in financial and foreign exchange markets, the intention is to prepare all possible countermeasures, including raising the benchmark interest rate.

Accordingly, there is growing analysis that the Bank of Korea is likely to raise the benchmark interest rate by 0.5% at the Monetary Policy Board meeting next month. Governor Lee said, "There are still 3 to 4 weeks until next month's Monetary Policy Board meeting, so many changes could occur during that time," and added, "We will decide after observing market reactions until then." Although he avoided a clear statement, Governor Lee also acknowledged that "(the U.S.) rate hike pace is faster than ours," suggesting that he is expected to take a more proactive stance on raising the benchmark interest rate.

Federal Reserve Chair Jerome Powell said at a press conference, "I do not think today's rate hike is typical," and forecasted, "There is a high possibility of a 0.50 or 0.75 percentage point increase at the next (July) meeting." Even if the U.S. takes only a big step next month, the U.S. benchmark interest rate will be 0.25 to 0.50 percentage points higher than South Korea's. In this case, there is analysis that domestic capital outflows and other damages could increase.

However, Governor Lee responded that he has "not yet considered" holding an emergency Monetary Policy Board meeting to raise the benchmark interest rate and said, "We will consider market conditions." The Bank of Korea has lowered the benchmark interest rate through emergency Monetary Policy Board meetings during the 2001 '9/11 attacks,' the 2008 financial crisis, and the 2020 COVID-19 outbreak, but has never raised it.

Deputy Prime Minister Choo also emphasized active responses to excessive volatility in financial and foreign exchange markets on the same day. He said, "We will maintain special vigilance against excessive volatility of the Korean won," and added, "If the bond market overreacts, the government will promote emergency buybacks, and the Bank of Korea will pursue simple purchases of government bonds."

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