Lee Chang-yong "Korea's Interest Rate Policy Not as Independent from the US as Expected"

On the 23rd, at the Bank of Korea in Jung-gu, Seoul, Governor Lee Chang-yong is drinking water during the National Assembly's Planning and Finance Committee's audit of the Bank of Korea.
[Image source=Yonhap News]

Lee Chang-yong, Governor of the Bank of Korea, said regarding South Korea's interest rate policy, "I am concerned because it seems to be less independent from (the U.S.) than I had thought."

This is interpreted as a remark about the pressure on domestic loan interest rates to rise due to the high U.S. interest rates, despite the Bank of Korea's recent consecutive base rate freezes.

On the 27th, at the National Assembly Budget and Accounts Committee's comprehensive audit held in Yeouido, Seoul, Governor Lee made this comment in response to a question from Yoon Young-seok, a member of the People Power Party, about "the reason why interest rates on mortgage loans and jeonse deposit loans in South Korea are rising following U.S. rate hikes, even though the Bank of Korea is keeping its rates unchanged."

Governor Lee explained, "In the past, capital movement was mostly centered on banks, and most capital outflows or inflows were foreign-centered, but over the past 10 years, domestic investors' overseas investments have increased, and individual investors' funds have also flowed out significantly," adding, "We are sensitive to overseas news and foreign interest rates."

Regarding the point that this situation could constrain South Korea's monetary policy, he said, "I used to think that if the exchange rate was freely floated, the interest rate policy would be independent, but it seems to be less independent than we thought, so I am concerned."

On measures to secure the effectiveness of monetary policy, the Bank of Korea governor emphasized that it is first necessary to determine whether the U.S. interest rate hike trend is temporary or long-term.

He said, "If it is temporary, we should remain within the level we manage, but if it is long-term, it poses many policy dilemmas, so we need to study it."

Regarding the necessity of fiscal rules, Governor Lee stated, "There are short-term issues, but considering aging and other factors in the mid-to-long term, there is a high possibility that fiscal deficits will increase significantly, so I think fiscal rules are necessary."

In response to a question from Lee Soo-jin of the Democratic Party about the possibility that South Korea's economic growth rate this year may fall short of the Bank of Korea's forecast of 1.4%, he emphasized, "We have already passed the third quarter this year, and with 0.6% growth in the third quarter, the trend so far is heading toward 1.4%."

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