Lee Chang-yong "Bank of Korea's Role in Controlling Korea's Fastest-Growing Household Debt Among OECD" (Comprehensive)

On the First Commute: "Analyzing Whether Downside Risks in Gyeonggi Affect Growth or Inflation More"

[Asia Economy Reporter Seo So-jeong] "The Bank of Korea must clearly send signals and play a role to curb the fastest household debt growth rate among OECD countries, which is Korea's."

On the 1st, Lee Chang-yong, the nominee for the Governor of the Bank of Korea, made a determined statement on resolving household debt while meeting with reporters in the lobby on the first floor of the Booyoung Taepyeong Building. Lee, who started his first day at the National Assembly hearing preparation task force (TF) office that day, said, "If I become the Governor of the Bank of Korea, the issue I definitely want to address is household debt," adding, "We need to make mid- to long-term efforts on how to implement policies regarding household debt together with the Financial Services Commission and the Financial Supervisory Service."

Regarding the impact of easing the total loan volume regulation on household debt, Lee said, "At the moment, household debt is linked to real estate issues and is not a risk factor, but in the mid- to long-term, it could become a significant burden for our country," expressing concern that "due to slowing growth and aging, if older people start taking out household loans for living expenses rather than real estate loans, the quality of household debt could deteriorate, leading to complex problems."

He emphasized, "I believe that since the Bank of Korea proactively raised the base interest rate starting in August last year, it has laid the groundwork to adjust household debt," and added, "Household debt negatively affects national economic stabilization later, so I think the Bank of Korea should strive to ensure that household debt issues can be soft-landed through overall interest rate policies."

When Lee highlighted risks such as the speed of U.S. monetary policy normalization, the Ukraine crisis, and China's economic slowdown upon his arrival on the 30th of last month, market expectations arose for a moderation in the pace of interest rate hikes. In response, he said, "I will analyze which of the three realized risks affect growth and inflation more and prepare a monetary policy direction that can well combine these factors."

Regarding criticism that government policy and monetary policy are out of sync due to the second supplementary budget (supplementary budget), he said, "Tension between the government, which must be responsible for growth, and the central bank, which must consider inflation, is natural," adding, "Recently, central banks comprehensively consider inflation, growth, financial stability, and macroeconomics, and take into account consistency and coherence with government policies, so I think it is important to coordinate policies amid conflicts."

On the inflation rate forecast for this year, he diagnosed, "In the first half, it will inevitably be higher than the Bank of Korea's forecast of 3.1%, and for the second half, I really don't know," explaining, "There is great uncertainty in the second half due to how long the Ukraine crisis will last, how high oil prices will remain, and the lockdown in Shanghai due to Omicron."

Regarding his monetary policy stance, Lee said, "It is not appropriate to divide into hawks (favoring monetary tightening) and doves (favoring monetary easing)," and answered, "Depending on the data, I might be hawkish in some cases and dovish in others."

On the possibility of interest rate inversion between Korea and the U.S., he said, "Since the pace of U.S. rate hikes will be fast, it is natural that the interest rate gap may narrow or invert," adding, "However, considering Korea's fundamentals, the impact of the interest rate gap on capital outflows between Korea and the U.S. will be small." He further added, "Rather, the concern is that if the interest rate gap widens, the exchange rate will tend to depreciate, and we should be more concerned about the impact that has on inflation."