Lee Chang-yong "Decision to Raise Base Interest Rate Appropriate"... Suggests Further Increase

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[Asia Economy Reporter Seo So-jeong] Lee Chang-yong, the nominee for Governor of the Bank of Korea, expressed agreement with the Monetary Policy Committee's decision to raise the base interest rate on the 14th. Lee's confirmation hearing is scheduled for the 19th, and the April Monetary Policy Committee meeting was held without a governor.

In a written response submitted on the 17th to Yang Kyung-sook, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, Lee stated, "It is cautious to directly evaluate the decisions made by the Monetary Policy Committee, but I believe the members made an appropriate decision by comprehensively considering the financial and economic situation, which is not different from the direction I think."

When asked whether raising interest rates is desirable, Lee replied, "As the economy continues to recover and a high inflation rate is expected to persist for a considerable period, it is desirable to operate monetary policy in a direction that promotes price stability through appropriate adjustments in the degree of easing going forward," suggesting the possibility of further base rate hikes.

Regarding recent inflation trends, he said, "It is expected that the high inflation rate will continue for a considerable period due to the rise in raw material prices caused by the Ukraine situation, among other factors. Additionally, recent inflation expectations have shown some instability, and it is necessary to be cautious about the possibility of secondary ripple effects such as wage increases mediated by this."

In response to criticism that government policies such as supplementary budgets and loan regulation easing are out of sync with monetary policy, he said, "I understand that the current new government's planned adjustments to loan regulations are focused on protecting real demand, such as first-time homebuyers, and are being pursued at a micro level. I do not think there is a situation at this point that warrants concern about a mismatch with monetary policy."

However, he added, "Since even these micro measures inevitably affect overall financial conditions such as market liquidity and the macroeconomy during implementation, if their impact grows, it will be necessary to consider this in monetary policy operations. In such cases, policy authorities should communicate and coordinate efforts to ensure that monetary and fiscal policies operate in harmony while pursuing their respective objectives."

When Kim Doo-kwan, another member of the same committee from the Democratic Party of Korea, asked for his opinion on the full implementation of the Debt Service Ratio (DSR) regulation for individual borrowers and strengthening credit evaluation, he pointed out, "Household debt that is high relative to income can increase the risk of insolvency in the event of domestic and external shocks and act as a factor that raises downside risks to the real economy through consumption slowdown."

Lee emphasized, "Therefore, considering that the strengthened DSR regulation so far has had a considerable effect in curbing household debt growth along with interest rate hikes, it is necessary to establish lending principles based on the borrower's repayment ability, like the DSR."

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