[2022 National Audit] Lee Chang-yong "Inflation at 5% Range Until Early Next Year... Firm Response to Foreign Exchange Market Imbalance" (Comprehensive)

Bank of Korea "Global Economic Recession Concentrated in First Half of Next Year"
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Price Stability Priority if Inflation Rate Reaches 5-6%

Lee Chang-yong, Governor of the Bank of Korea, is attending the National Assembly audit of the Bank of Korea held on the 7th and responding to lawmakers' questions. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Seo So-jeong] Lee Chang-yong, Governor of the Bank of Korea, forecasted that the global economic recession will be concentrated in the first half of next year, followed by a recovery phase after the second quarter. Regarding the inflation rate, he predicted that it will remain above 5% in the early part of next year and then fall to the 3% range by the end of the year.

At the Bank of Korea's audit by the National Assembly's Planning and Finance Committee on the 7th, in response to lawmakers' questions about the peak of inflation, Governor Lee said, "We predicted it would be around October, but we still need to wait and see," adding, "The concern is that even after October passes, it is highly likely that the inflation rate will not quickly drop below 5% until the first half of next year."

The Bank of Korea had previously expected in its revised economic outlook in August that the inflation rate would remain high, exceeding 5% until early next year. In response to a question from Lee Soo-jin, a member of the Democratic Party of Korea, about future inflation prospects, Governor Lee replied, "As of now, the high inflation rate above 5% will continue until the first half of next year, then drop to around 3% by the end of the year."

Governor Lee later clarified in additional remarks that the inflation rate forecast of over 5% for the first half of next year specifically referred to the first quarter.

◆ Governor Lee Emphasizes Inflation-Centered Monetary Policy = When Ryu Seong-gil, a member of the People Power Party, expressed concern that the Bank of Korea might appear indecisive by considering various factors such as exchange rates, household debt, and growth, Governor Lee emphasized, "While the inflation rate remains between 5 and 6%, price stability is the highest priority."

Amid the announcement that the current account balance for August recorded a deficit of $3.05 billion, down $10.49 billion from the same period last year, Governor Lee projected that the current account will maintain a surplus trend for the entire year and continue to show a surplus next year.

He explained, "The current account surplus was about $27 billion in the first half of the year, so even if there are fluctuations between surplus and deficit in some months of the second half, it is almost statistically certain that the overall annual surplus trend will be maintained."

He added, "For next year, we expect the semiconductor market to improve after the second quarter. The global economic recession will also be concentrated in the first half, followed by a recovery phase, and energy prices will stabilize somewhat. Although the surplus will be smaller than before, the current account surplus trend is expected to continue next year."

[Image source=Yonhap News]

◆ Cabbage Appears at the Audit... Emotional Over Burden of Interest on Low-Income Households = During the audit, lawmakers from both ruling and opposition parties raised questions related to the 'three highs' phenomenon: high inflation, high interest rates, and high exchange rates. Regarding high inflation, a cabbage was brought into the audit room, drawing attention. Bae Jun-young, a member of the People Power Party, held up a cabbage and said, "I bought this at Nonghyup Hanaro Mart, and the price, which used to be 2,000 to 3,000 won, has risen to 9,000 won, causing much concern," adding, "What the public wants from the Bank of Korea is an 'inflation fighter'." He urged the Bank of Korea to accurately understand and address the prices affecting people's livelihoods.

Regarding high interest rates, concerns were also raised about the interest burden on low-income households. Jang Hye-young, a member of the Justice Party, asked Governor Lee if he was aware of a loan auction website called 'Daechulnara.' When Governor Lee replied that he did not know it, she explained, "On this site, when you enter the amount of money you need, lending companies leave comments, with about 12,000 comments posted monthly. Three years ago, the requested loan amounts were between 1 million and 3 million won, but this year, they are between 210,000 and 400,000 won."

Jang, becoming emotional, said, "This shows that many people are in desperate situations." She questioned whether the Bank of Korea's financial stability report, which states that rising interest rates may burden borrowers' debt repayment but that the interest burden is not large except for relatively high burdens on low-income households, truly reflects the anxiety of ordinary people. She pointed out that such desperation does not appear in the data from the Bank of Korea or the Financial Supervisory Service.

Questions about the Korea-US currency swap, which is mentioned as a measure to stabilize the exchange rate, also followed. Jo Hae-jin, a member of the People Power Party, asked, "Wouldn't the conclusion or increased possibility of a Korea-US currency swap have a significant effect in stabilizing the unstable foreign exchange market?" Governor Lee responded, "While the currency swap helps with psychological stability, it is difficult to solve all problems with it."

Amid an unusually large decline in foreign exchange reserves in September, Governor Lee stated that he would respond firmly to any future market imbalances. When Yang Kyung-sook, a member of the Democratic Party of Korea, asked about the reason for the sharp $19.7 billion drop in foreign exchange reserves last month, Governor Lee said, "It was due to multiple unexpected uncertainties occurring simultaneously," mentioning "the decisions of the U.S. Federal Reserve, issues in the UK, and yen speculation, which made the market imbalance so severe that intervention was unavoidable."

Governor Lee added, "Recent foreign exchange market interventions are a common phenomenon worldwide," and noted, "Japan's intervention volume is estimated to be more than twice that of our country, based on indirect assessments."

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