At an inauguration ceremony held at the convention hall of the Buyeong Taepyeong Building in Jung-gu, Seoul on the followingnoon of the 21st, Lee Chang-yong, the new governor of the BOK, emphasized that “the framework of economic policy must be changed and structural reforms must be rushed.” yunhap news
Lee Chang-yong, the new governor of the Bank of Korea, took office on the 21st. It has been more than 20 days since the former governor Lee Ju-yeol resigned from his absence. The BOK is in a state of emergency to respond to inflation by raising the interest rate by an additional 0.25 percentage point despite the absence of its governor through the Monetary Policy Committee on the 14th. Governor Lee also emphasized responding to inflation that broke the 4% level, saying, “The trade-off between growth and inflation further constrains monetary policy.”
The ‘traffic relationship’ referred to by Governor Lee is an expression of the dilemma of not raising interest rates or raising interest rates steeply. An additional rate hike is unavoidable given the rise in inflation, the management of the household debt crisis nearing KRW 2,000 trillion, and an additional rate hike in the US. However, as concerns regarding an economic slowdown are rising in the followingmath of COVID-19 and the prolonged war in Ukraine, it means that a sophisticated and flexible monetary policy will be implemented so that interest rate hikes do not limit the economic recovery.
It is also noteworthy that President Lee emphasized the urgency of structural reform in his inaugural address. President Lee said, “The Korean economy is at a crossroads whether it will overcome the challenge of transitioning to a new normal following the corona virus and make a further leap forward, or will fall into long-term low growth due to an aging population and reduced productivity.” Therefore, he emphasized, “Efforts to reallocate resources should be accelerated through structural reform, such as promoting qualitative growth led by the private sector and diversifying export and supply chains concentrated in a small number of industries and countries.”
President Lee explained that the reason why he even mentioned structural reform, which is unusual as the governor of the BOK, was that “Considering the mid- to long-term challenges facing the Korean economy, the BOK’s responsibility cannot be confined to monetary policy alone.” As an economist who served as the Asia-Pacific director of the International Monetary Fund (IMF), the BOK declared its will to expand its role. The key issues discussed by President Lee, such as inflation and debt, economic slowdown, and structural reform, can lead to a crisis at any time if management and response fail. The creative challenge of Han Eun, who has taken on the new head, is urgently needed.
