Outgoing BOK chief concerned over high inflationary pressure

South Korea’s central bank chief Lee Ju-yeol on Wednesday expressed concerns of the lingering woes stemming from COVID-19, including the high inflationary pressure, as he prepares to wrap-up eight successful years as the Bank of Korea governor.

“Looking back, my past eight years as BOK governor were full of unexpected events starting with the Sewol Ferry disaster -- which happened only 15 days after I took office -- MERS, Brexit, US-China trade war, Japan’s export restrictions against Korea, COVID and most recently the Russia-Ukraine crisis,” Lee told reporters in a farewell speech released a week before his official end-of-term on March 31.

“It seems the BOK faces further difficulties in making monetary policy decisions due to uncertainties -- the need to adjust the pace of monetary easing is crucial at the moment as we grapple with higher inflation,” he added.

Lee said that the BOK’s rare and preemptive decision to carry out the first pandemic-era rate hike in August last year among major central banks around the world has given the country room to consider its next policy move. But he warned that with the rate hike having put pressure on businesses and individuals, choosing the timing of additional monetary policy moves was more important than ever.

The BOK ended its 15 months of record-low interest rate of 0.5 percent by delivering its first pandemic-era rate hike of 25 basis point to 0.75 percent in August last year. It had cut the key rate to a record low of 0.5 percent in May 2020 to cushion the economy from pandemic woes.

The rate hike was a tough and rare monetary decision for the BOK as it tends to follow the US Federal Reserve’s steps in such moves. The US Fed has begun tapering its bond-buying and started indicating an interest rate hike as early as March 2022, months after the BOK begun its monetary policy shift.

Since August, the BOK has carried out two additional rate hikes in November and January this year, pushing up the base rate to the current 1.25 percent.

Besides highlighting the importance of setting the right timeline for monetary policy moves, Lee pointed to stronger cooperation among central banks and international organizations as a key task for the BOK.

“The global economy is becoming more tightly connected and there is now a bigger need for international cooperation,” Lee said.

“With Korea’s economy expanding by the day and our status in the international society getting higher, the BOK must deliver a performance in line with our growth.”

In February, the BOK maintained its growth outlook for the South Korean economy at 3 percent for this year. But the central bank raised its inflation growth outlook to 3.1 percent from the previous 2 percent.

Lee became BOK governor in 2014 during the former President Park Geun-hye administration. He was successfully nominated for his current and second term in 2018, after the Moon Jae-in administration came to power. Lee is the third BOK chief ever to serve two consecutive terms. He has also stayed with the BOK for 43 years after entering the central bank in 1977, except for the two years he left to teach economics at Yonsei University in Seoul between 2012 to 2013.

Meanwhile, President Moon on Wednesday named Rhee Chang-yong, director of the Asia and Pacific department at the IMF, to replace Lee Ju-yeol as governor of the central bank.

By Jung Min-kyung (mkjung@heraldcorp.com)