“The slowdown in Korean prices may be slow… The pressure to increase costs is reflected late”
“Difficulties in the real estate sector may appear… High household debt burden”
Bank of Korea Governor Lee Chang-yong predicted, “This year will be a year in which we must carefully consider trade-offs with economic and financial stability while focusing on inflation.”
Governor Lee said at the opening remarks at the press conference of the Seoul Foreign Correspondents’ Club on the followingnoon of the 18th, “Last year, as the high inflation rate of 5% or more continued, the focus was on prices.”
Earlier, at a press conference right following the monetary policy direction meeting of the Monetary Policy Committee (Monetary Policy Committee) on the 13th, he said, “If the inflation rate exceeds 5%, monetary policy should be centered on inflation. It has also announced that it will operate monetary policy considering both financial stability and financial stability.
On this year’s inflation trend, Governor Lee said, “Core inflation (inflation), excluding food and energy, will continue to slow as downward pressure on the economy grows, as in major countries.” “The effect of this is reflected later in the consumer price index (CPI) and may differ from major countries,” he said.
Last year, the rate of increase in energy rates such as electricity and gas rates in the euro area exceeded 40%, but only 13% in Korea. It is explained that the slowdown in headline inflation may be slower than in major countries as it is reflected in gas prices later.
Governor Lee said, “Communication difficulties related to financial stability will also increase.”
Governor Lee compared Korea’s monetary policy management conditions with those of major countries that day, citing unexpectedly high inflation, a strong dollar, and monetary tightening under high leverage levels as commonalities with major countries.
“Even within these similarities, Korea’s unique characteristics emerged,” said Lee. “High inflation was a common phenomenon worldwide, but the factors that caused it were different for each country.”
In the euro area, supply factors were greatly affected by the surge in energy prices following the war in Ukraine, while in the United States, inflationary pressure was greater due to increased fiscal spending and changes in the labor market structure in the process of recovering from the pandemic.
Governor Lee said, “In the case of Korea, the contribution of the demand and supply factors was found to be in the middle of the two regions.”
According to the Bank of Korea, the contribution rate of source items (excluding food and energy) to CPI last year was 54.7% in Korea, 66.8% in the US, and 33.1% in the euro area.
In the case of the foreign exchange market, a concentration phenomenon appeared in the second half of last year.
Governor Lee said, “From mid-August to the end of October last year, the won depreciated faster than the speed of the dollar’s strength.”
Another characteristic was that Korea’s household debt-to-GDP ratio was 105%, the highest in the world.
Governor Lee said, “Korea’s household debt structure acts as a factor that complicates monetary policy decisions. Korea’s short-term debt and floating rate ratio are relatively high compared to other countries. Sensitivity to spending and economic conditions may be greater,” he said.
According to the Bank of Korea, the share of household debt with a maturity of less than one year is regarding one-third of the total, and regarding 80% of household debt consists of floating rate loans.
“The Bank of Korea will comprehensively consider these policy conditions and operate its monetary policy more elaborately in the future,” said Governor Lee. “We will also actively strive for transparent communication with the market.”
/yunhap news