Lee Chang-yong: "BOK Should Use Interest Rate Signals to Encourage Household Debt Management"

Lee Chang-yong, the nominee for Governor of the Bank of Korea, is arriving at the confirmation hearing office set up in the Booyoung Taepyeong Building on Sejong-daero, Jung-gu, Seoul, on the 1st, and responding to questions from the press. Photo by Joint Press Corps

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[Asia Economy Reporter Seo So-jung] Lee Chang-yong, the nominee for Governor of the Bank of Korea, expressed the opinion that continuous signaling of interest rate hikes is necessary to resolve household debt issues that may arise during the process of normalizing interest rates.

Ahead of the parliamentary confirmation hearing, Lee responded on the 10th to a written question from Kim Joo-young, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, asking about measures to manage household debt stably. He stated, "It is important for the Bank of Korea to induce economic agents to manage household debt on their own through interest rate signals."

Lee emphasized, "The household debt issue is deeply connected to the real estate problem and could become a factor in slowing future growth rates, so stabilizing the pace of household debt increase is an urgent policy task."

He also mentioned that additional policies beyond monetary and interest rate policies are necessary to solve the household debt problem. He explained, "It is difficult to solve the household debt problem solely with monetary and interest rate policies, and micro-level policy responses such as debt restructuring and enhancing the effectiveness of the personal bankruptcy system need to be considered together."

Furthermore, Lee stated, "Support measures for low-credit borrowers, the elderly, and the poor, who may be relatively more affected during the interest rate normalization process, also need to be implemented simultaneously," adding, "The Bank of Korea will cooperate with the government and supervisory authorities to make every effort to ensure a soft landing of the household debt issue."

In response to a question about the future outlook for the number of high-risk households and changes in debt due to interest rate hikes, he expressed concern, saying, "The number and debt size of high-risk households, which had been increasing, somewhat decreased last year due to the impact of COVID-19-related financial support measures. However, as loan interest rates rise and the interest repayment burden on households increases, there is a possibility that more households with relatively large debt compared to income and assets will be classified as high-risk households."

In particular, Lee pointed out, "Households that have borrowed excessively for home purchases by taking advantage of low interest rates and low-income groups with high debt-to-income ratios may see their repayment ability deteriorate with rising interest rates. Therefore, it is necessary to thoroughly monitor and manage related risks by issuing early warnings in advance."

Regarding the confirmation hearing for Lee, which has been scheduled for the 19th, and the April monetary policy direction meeting being held without a governor, he added, "Since monetary policy is decided by the Monetary Policy Committee, a collective decision-making body, I believe that even in the absence of a governor, the committee members will carefully consider financial and economic conditions and carry out monetary policy without disruption."

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