The Bank of Korea
New Year Speech
January 2, 2017
Juyeol Lee
Governor
The Bank of Korea
Dear fellow members of the Bank of Korea,
Today is our first day of work in 2017, and I would like to
begin by expressing my sincere appreciation to all of you, for so
faithfully carrying out your duties last year. At the opening ceremony
for each new year, we always resolve to show renewed spirits of
determination, but this year I think even more extraordinary
resolutions are called for than in the past.
Looking back on the past year, a series of unexpected
shocks at home and abroad caused our economy great difficulties.
At the beginning of the year factors such as economic unrest in
China, the further decline in international oil prices and uncertainties
as to the timing of the policy rate hike by the US Federal Reserve
kept us awake. After that the Brexit vote in the UK, the presidential
election in the US and political uncertainties at home arose as
additional destabilizing factors. As a result of this series of events,
our financial and foreign exchange markets were hit by high
volatilities, and economic sentiments weakened sharply.
Against this backdrop, in order to support the recovery of our
economy's growth the Bank of Korea eased its monetary policy
stance further. In March of last year we raised the total ceiling of
the Bank Intermediated Lending Support Facility greatly, and in June
we cut the Base Rate to 1.25% per annum. Moreover, while closely
monitoring the financial and foreign exchange markets at home and
abroad, we worked actively to stabilize the markets whenever
factors causing instability arose.
Despite these efforts, however, our country's economic growth
still fell short of its potential last year. Consumer price inflation also
remained considerably below the target. The trend of high growth in
household lending continued as our accommodative policy stance
became prolonged, and concerns grew about the possibility of
household debt causing a contraction in consumption and
undermining financial stability.
Dear members of the Bank of Korea,
This year our economy is expected to maintain its modest
growth, thanks to the strengthening somewhat of the global
economic recovery. If we look around, however, at conditions here
at home as well as abroad, there are potential risk factors lurking
everywhere that could limit the pace of growth.
First of all, as the movements toward strengthened
protectionism in major countries become more evident, it is possible
that world trade could contract. Uncertainties concerning the policy
directions of the new US administration, the rate hikes by the US
Federal Reserve and the UK's Brexit from the EU could cause
international financial market unrest, and a delay in the world
economic recovery. Domestically, it is hard to rule out the possibility
of the lingering political uncertainties having adverse effects not only
on the consumption and investment sentiments of economic agents,
but on the views of foreign investors concerning our economy as
well.
At a time like this, keeping the foreign exchange market and
the real economy stable is of primary importance. Given the Korean
economy's robust external soundness and financial resilience as well
as its adequate policy space, it should be able to withstand shocks
of some extent. We cannot just sit back complacently, however. If
multiple external risks should materialize all at once, or in concert
with a deterioration in domestic conditions, the repercussions can be
greater than expected. We should therefore devote every effort to
comprehensive risk management, so that we can deal in a timely
manner with any such situation that may arise.
We also need to push consistently ahead with reforms to
counteract structural problems such as our low birth rate and
population aging, the accumulation of household debt, labor market
segmentation, and income inequality. If we leave our economy's
structural vulnerabilities unresolved, citing the unfavorable conditions
currently before us, then the recovery of our growth potential will
become even more difficult to attain.
Dear members of the Bank of Korea,
I would like to touch now on the major tasks that we will
need to focus on this year.
We will conduct our monetary policy so as to ensure that the
recovery of economic growth continues, and that consumer price
inflation approaches the target level over a medium-term horizon.
Although the pace of inflation will gradually pick up, owing to the
rising oil prices, it is forecast that the upward pressures from the
demand side will not be great since economic growth is expected to
be only modest. Going forward, maintenance of our current
accommodative monetary policy stance for a considerable time will
thus be appropriate.
We also need to operate the Bank Intermediated Lending
Support Facility in the direction of improving its support for
economic growth. The financial support for SMEs suffering
temporary financing problems, and for those that contribute to
increasing employment, needs to be expanded. Given the
considerably changed financial and economic conditions, we will also
have to examine the need for reforming our lending facilities over a
medium- to long-term horizon.
When carrying out our monetary policy this year, we should
devote particular attention to financial stability. As the possibility of
expansions in financial and FX market volatilities is high, we will
have to carry out stabilization measures actively as needed, while
closely monitoring the trends of price variables and capital flows.
The upward pressures on market interest rates, which have grown
in consequence mainly of the rate hikes by the US Federal
Reserve, could aggravate households' debt repayment burdens. We
thus need to work, in close consultation with the government and
the supervisory authorities, to ease the trend of sharply rising
household debt and to prevent the risks of default among the
vulnerable groups from escalating.
We must also redouble our efforts to enhance the
effectiveness of our monetary policy, and most importantly to
increase the accuracy of our economic forecasts. We should devote
efforts to continually improving our forecasting model, to using new
technologies such as big data, and to expanding the number of our
specialist staff. At the end of last year we released the "General
Principles of Monetary Policy Operation," and resolved to push
ahead with improving the contents of the monetary policy statement
from the Monetary Policy Board meeting as well as expanding the
scope of related reports released to the public. These efforts will
heighten the predictability of our monetary policy and thus contribute
to enhancing its effectiveness.
We will need as well to respond actively to the digital
revolution in the payment and settlement field, which is progressing
rapidly. Through cooperation with the financial sector, and with IT
specialized enterprises, we will need to establish a foundation
facilitating the wider use of FinTech, distributed ledger technology
and biometric authentication. While on the one hand working to
support the smooth launch and settlement into place of Internet
banks, we should at the same time push ahead without delay on
the pilot program exploring introduction of a "coinless society".
Central banks of major countries are carrying out in-depth research
recently on digital currencies, and we too should begin research on
the forms of issuance of, the technical framework for, and the
effects on monetary policy and financial stability of digital currencies.
As the Korean economy's status in the international
community has risen, its engagement in external financial
cooperation is becoming more important, and the Bank of Korea is
for example now expected to take on a strengthened role in
international organizations. In responding to this, we need to
implement our organization and personnel management in a way
that supports improved specialization for these tasks.
In order to help our central bank cope effectively with the
rapidly changing domestic and external environments, we must work
to enhance the expertise and diversity of our staff. To this end, we
should constantly improve our recruitment system and our human
resource management framework. We should also continue our
efforts to adjust our personnel and remuneration systems in
directions whereby the fairness of our staff evaluations is enhanced
and job competencies and performances are emphasized. The
construction of a new annex building, combining two currently
separate buildings, will begin this year together with the remodeling
of our main building. We need to all cooperate closely to ensure
that this project, as well as other complementary measures including
the temporary relocation of our offices and the transfer of unissued
banknotes, can be accomplished as planned.
Dear fellow members of the Bank of Korea,
Korea now faces extremely critical political and economic
conditions. In this situation it is inevitable that social expectations for
the central bank, which is responsible for one axis of the nation's
macroeconomic operations, are high. I ask you all to continue
devoting your best efforts to fulfill your duties entrusted to you,
without faltering and with a full sense of commitment and
responsibility.
In carrying out our duties, we should also try to be flexible in
our thinking. As we witnessed during the AlphaGo fever last year,
the pace and scope of advance of the 4th Industrial Revolution is
hard to even imagine. Under circumstances like these, our current
experience and knowledge could become less valid in the future,
and the central bank's achievement of its policy goals through
reliance on conventional wisdom alone could be difficult. Bearing
this in mind, we need to listen carefully to diverse opinions with
open minds. Even as we do so, however, it goes without saying of
course that we must continue to uphold our fundamental principles
as the central bank.
I believe that if all of us work together with firm
determination, our economy will be able to overcome the many
difficulties now facing it, and advance one step further. In
welcoming the new year, I want to wish all of you in our Bank of
Korea family very abundant health and happiness.
Thank you.