Bank of Korea Governor Lee Chang-yong said on the 3rd, “It is good news that consumer price inflation slowed to 3.7% last month, but it is premature to discuss a base rate cut.”
President Lee made this remark during an interview with CNBC on the occasion of attending the annual meeting of the Asian Development Bank (ADB) held in Songdo, Incheon.
Regarding the discussion of future interest rate cuts, Governor Lee explained, “In the end, it depends on the data.”
Moreover, given the rigidity of core inflation, he stressed that it is still too early to discuss an interest rate cut.
According to the National Statistical Office, the core inflation rate excluding food and energy last month was 4.0%, the same as the previous month in March and last February.
He said he was not too concerned about the recent exchange rate hike.
Governor Lee said, “Considering that the won was the best currency in January, we do not worry too much about exchange rate changes that occur every day, but we need to be cautious about large volatility.” There is a lot of pressure (won depreciation), but I think the situation will improve.”
The need for a Korea-US currency swap was also evaluated as not great.
Governor Lee said, “You may point out that a safety valve against exchange rate volatility is necessary, but if you think back to last year when the dollar was strong, the currency value has depreciated a lot even in countries that signed a swap agreement.” It is not because of vulnerabilities, and currency swaps are not entered into for the purpose of solving these problems.”
In the case of the recent global banking unrest, I thought that Korea would not have the same problem.
“Our market structure is quite different,” Lee said. “Fortunately, in Korea, the bond maturity structure (held by banks) is much shorter.” Rather, it was evaluated that “it has a problem in that it shifts the risk of interest rate hikes to the final consumer rather than to financial institutions in some ways because of the high proportion of bank loans with floating rates.”
In addition, it analyzed that the burden on loan borrowers is high due to the aftermath of interest rate hikes, but it is still manageable.
Regarding this year’s economic growth rate, it repeated its remarks last month that it would fall below the 1.6% forecast at the beginning of the year.
Governor Lee said, “China’s economic recovery seems to be slightly delayed than we initially expected,” adding, “We need to collect more data on how China’s real estate sector is doing. We will give a revised outlook within a month.”
As for relations with China, he predicted that China would catch up with South Korea as a result. This is interpreted in the same context as the remarks made earlier by Deputy Prime Minister of Economy and Minister of Strategy and Finance, Choo Kyung-ho, to the effect that “the era of making big money from trade with China seems to have passed.”
President Lee said, “Just as we caught up with Japan in the past 20 to 30 years, we must see that China will catch up with us.” Structural reforms are needed to do this,” he said.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.