Lee Chang-yong "Too Early to Discuss Interest Rate Cuts... Won Weakness Pressure Will Ease"

CNBC Interview Ahead of ADB Opening Ceremony

Bank of Korea Governor Lee Chang-yong is holding a press conference on the April Monetary Policy Committee interest rate decision at the Bank of Korea in Jung-gu, Seoul, on the 11th of last month.
[Image source=Yonhap News]

Lee Chang-yong, Governor of the Bank of Korea, said on the 3rd that the US tightening monetary policy appears to be nearing its end, and the recently strengthening trend of the Korean won's depreciation will gradually ease.

He stated that it is premature for the Bank of Korea to end its tightening monetary policy and discuss lowering the base interest rate.

Governor Lee made these remarks in an interview with US CNBC ahead of the opening ceremony of the Asian Development Bank (ADB) Annual Meeting held at Songdo Convensia in Incheon on the morning of the same day.

Regarding the Korean won's weakness as the won-dollar exchange rate rose to the 1,340 won level, he said, "We are paying attention to the increased volatility in the foreign exchange market," but explained, "Considering the outlook for US monetary policy, the pressure on the won's depreciation is expected to weaken."

The US Federal Reserve (Fed) is scheduled to decide the base interest rate at the Federal Open Market Committee (FOMC) regular meeting in the early morning of the 4th, Korean time. The market expects the Fed to raise the base interest rate by only 0.25 percentage points, taking into account financial instability and other factors.

Regarding Korea's inflation, Governor Lee said that core inflation remains high, and it is still too early to change the direction of monetary policy to lowering interest rates.

He emphasized, "Although most countries have reached the peak of inflation, the core price index remains sticky," and "it is still premature to mention the possibility of a pivot (monetary policy shift)."

On the Bank of Korea's recent decision to freeze the base interest rate for two consecutive times, he said, "We raised interest rates by 300 basis points (1bp = 0.01 percentage points) over about a year and a half at a very fast pace, and it is time to assess the cumulative effects of these increases."

He also maintained the existing stance that a Korea-US currency swap agreement is 'not necessary.'

Governor Lee explained, "Looking back at last year's strong dollar period, even countries that signed swap agreements experienced significant currency depreciation," adding, "The current pressure on the won's depreciation is not due to our vulnerabilities, and currency swaps are not concluded for the purpose of solving such issues."

Regarding the recent instability in the US financial market, including First Republic Bank, and its impact on Korea, he said, "Korea and the US have different industrial structures," and there is no significant negative ripple effect.

Governor Lee described the future economic outlook, saying, "We expect this year's growth rate to be 1.6%, but it may be slightly downward," and explained, "The key issue is the delayed recovery in China, and more data related to China is needed."

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