Gov. Lee Ju-yeol of the Bank of Korea meets with media at a ceremony for his 2nd  consecutive term inauguration as the governor of the central bank on April 2. (Photo: BOK)

Gov. Lee Ju-yeol of the Bank of Korea officially began his 2nd consecutive term in a ceremony held on April 2 at the central bank’s auditorium in down town Seoul.

In his inaugural speech, Lee warned that the uncertainties surrounding the economy now are greater than at any other time before. Already this year, financial markets worldwide have been shaken to considerable extents, in line with the monetary policy normalizations in major countries and the movements toward strengthened trade protectionism. In Korea structural problems have also built up, owing to the country’s low birthrate and aging population, income imbalances, dual labor market structure and accumulated household debt. All of these are factors that can undermine the stability of our real economy and financial system, he said.

While working to sustain the momentum of the economic recovery, “we will also have to operate our monetary policy so as to ensure that financial system stability can be maintained,” he said. “As we continue our monetary policy accommodation to support our economy’s trend of growth, and closely examine changes in real economic and financial stability conditions, we will need to judge carefully the necessity of any adjustment in the degree of accommodation.” 

In this process Lee said that Korea will have to devote special care to making sure that potential financial system risks, such as the buildup of household debt and the possibility of capital outflows, do not materialize. In order to operate our monetary policy effectively, accurate assessment and forecasting of financial and economic conditions are essential. 

“And on the basis of this we will have to maintain consistency in our policy-making, while formulating the directions for our monetary policy operations from a medium-term perspective and communicating on them with the market,” he said in the remarks. While devoting efforts to the efficient operation of our monetary policy, Korea will not hesitate to provide advice on pending economic issues overall, the central bank governor said. 

“Short-term policy responses to the risks facing us mentioned earlier are of course important, but when looked at from a long-term perspective I believe that the work of resolving the structural vulnerabilities in our economy is a task that cannot be delayed any longer,” Lee said. “Through in-depth research we will have to precisely diagnose the urgent economic issues before us, seek viable responses to them, and consistently propose these to the policy authorities.”

Lee pledged to enhance the Central Bank’s monetary policy’s effectiveness and reconsider our policy framework and instruments. “Taking into account the changes in the relationship between growth and prices, as well as the importance of the central bank’s role in financial stability, we will have to deliberate deeply on measures to facilitate efficient operation of our inflation targeting system,” the veteran central banker said.

Since there is a possibility that, together with the drop in our potential growth rate, the scope for the Central Bank’s Base Rate operations will become narrower than previously, it will be necessary from a medium- to long-term perspective to also devise measures for securing our policy capacity.

“We will have to respond actively to the changes in our financial environment due to the developments of fintech and new technologies such as Blockchain,” Lee said.  

Technological innovation these days is so rapid and complex that it is difficult to compare it with past cases. These changes do bring to us new opportunities and convenience, but they can also lead to unanticipated risks, and also threaten our financial system’s stability. 

“We will have to strengthen our research on the impacts that digital innovation is having on the real and financial economies, while at the same time also participating actively in the international discussion in this regard,” he said. 

The central bank is called the Bank of Korea. Price stability is the main objective of the monetary policy of the central bank. Inflation targeting is the monetary policy which aims to achieve an explicit target for the level of inflation.