Chang Yong Rhee: New Year Speech
New Year's address by Mr Chang Yong Rhee, Governor of the Bank of Korea, at the
Bank of Korea, Seoul, 2 January 2023.
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My dear colleagues at the Bank of Korea,
Today we start our first day of work in 2023. Let me begin by expressing my heartfelt
gratitude to all of you for your best efforts at fulfilling your duties in your respective roles
throughout the past year. I also thank your families for supporting your hard work here. I
wish you and your family the very best of health and success in your endeavors in the
coming Year of the Rabbit.
Last year was a time of significant change around the globe. The Russian invasion of
Ukraine and heightened tensions between the U.S. and China have accelerated the
bloc formation of the global political and economic structure. The low inflation
environment since the Global Financial Crisis has ended, and has been followed by
high global inflation. With the COVID-19 pandemic stretching for over two years, fatigue
among economic agents has built up and polarization has deepened across various
areas.
Amid these changes, the Korean economy experienced substantial difficulties caused
by the elevated inflation and the strains in the financial and FX markets. As international
commodity prices soared after the outbreak of the war in Ukraine in late February,
prices rose steeply in Korea, too. As a result, consumer price inflation hit 6.3% in July,
the highest rate seen since the Asian Financial Crisis. In September and October, the
strong dollar led to a sharp depreciation of the Korean won, and FX market volatility
intensified. From October, credit risk aversion, triggered by the default of a Legoland
developer, spread, exacerbating liquidity conditions in the short-term money market.
Against this backdrop, the Bank of Korea conducted monetary policy with top priority on
price stability, while paying attention to financial stability and the support of vulnerable
sectors. With the paces of the rate hikes in major economies, including the U.S.,
accelerating, we also hiked the Base Rate to 3.25%. It is true that rate hikes increased
difficulties among the people, but they were an unavoidable choice to prevent high
inflation from becoming entrenched and the economy as a whole from suffering a
greater loss in the long-term. We also responded actively to unrest in the financial and
FX markets with micro-level market stabilization measures. Owing mainly to these
policy responses, inflation has shown signs of slowdown and the credit crunch in the
short-term money market has also been somewhat alleviated.
My dear colleagues,
This year is likely to be challenging, amid ongoing high economic uncertainties at home
and abroad. International financial markets could see heightened volatility in line with
the monetary policy stances of major central banks, including the U.S. Federal Reserve.
International commodity prices could fluctuate, depending on the development of the
war in Ukraine, and it is still difficult to predict how the lifting of China's "zero COVID"
policy and the ensuing changes in its COVID-19 conditions will influence the global
economy. On the domestic front, as real estate market activity has contracted rapidly,
we could face a recurrence of the relevant financial market unrest. In addition, as the
materialization of effects of Base Rate hikes is likely to increase the possibility of a
conflict among price stability, steady growth, and financial stability, a more refined
policy mix will be of utmost importance this year.
Many experts are raising concerns about the possibility that the world economy will face
an ever more serious complex crisis, as multiple challenges, such as an economic
slowdown and supply chain reorganization, stack on top of one another. However, I
don't think that there are only gloomy or negative sides to our situation. As the proverb
goes, "Every cloud has a silver lining." It is true that the Korean economy is going
through a tough time right now. However, I think we are still able to find some optimistic
aspects, and I believe we should.
Let me give you some examples. For starters, we had a chance last year to confirm that
Korea's external soundness had been enhanced. As the won/dollar exchange rate
jumped to the mid-1,400 won range in the second half of last year, some even raised
concerns about a possible recurrence of past crises. Contrary to those concerns,
however, the exchange rate gradually stabilized and unrest in the FX sector eased,
thanks to the risk management systems of the government, corporations, and financial
institutions that had been improved over the course of overcoming several former
crises. This is a case in point to show that, while we should be vigilant about any
possible crises in the future, there is no need to shrink from excessive concerns
beforehand. In the same context, although there may be hardships owing to the recent
property market contraction, I think we will be able to weather the situation through
appropriate policy responses given the overall soundness of domestic financial
institutions.
Moreover, while there is much concern about the trade account deficit, this is mainly
attributable to the increase in imports due to the surge in global commodity prices. In
fact, Korea's exports reached an all-time high last year. Despite sluggish semiconductor
exports due to the fall in unit prices, exports of other major items continued to grow last
year. Given this, Korea's trade account is expected to improve rapidly should external
conditions recover.
While it is possible that the fragmentation of international trade and high interest rates
could further weigh on the Korean economy going forward, from a different perspective,
they could also serve as an opportunity for us to address the structural issues that have
been left untackled. In the course of responding to the restructuring of global supply
chains, we need to reduce our heavy dependence on the Chinese economy through,
namely, market diversification. The high interest rate environment could also be a
starting point for us to alleviate the high level of household indebtedness while
improving the debt structure. The Korean economy has been repeatedly seeing
property-related finance emerge as a structural vulnerability, albeit in different forms.
We should take this opportunity to bring good out of evil by fundamentally resolving the
related issues. Toward this goal, we will also need to look into the reasons why
macroprudential regulations did not operate effectively as preemptive measures.
The German philosopher Hegel once said, "We learn from history that we do not learn
from history." Let us not repeat the same mistake as pointed out by Hegel. It is true that
we are facing hardship both domestically and internationally. However, I believe we can
produce a better outcome based on our actions. We have it in our DNA to effectively
overcome any crisis. We must turn these challenges into opportunities.
My dear colleagues,
In times of need, people look to experienced professionals. In flight, if visibility is poor
due to worsening weather conditions and if the runway is so narrow that a soft landing
seems unlikely, an experienced and reliable pilot will be needed more than ever. With a
wealth of experience and a balanced perspective, the Bank of Korea should work hard
to become one of the most trusted pilots to help our economy make a soft landing. To
this end, it is necessary to more accurately judge and predict economic and financial
conditions at home or abroad. Moreover, to prevent the excessive concerns of each
economic agent from creating self-fulfilling anxiety, the Bank of Korea should provide
objective information about economic conditions and policy directions through active
and transparent communication. If we pool our wisdom and strengthen our leading role
as a central bank, this will enhance the effectiveness of our policy and make the Bank
of Korea more trustworthy.
Earlier, I stressed that sophisticated policy responses are needed more than ever this
year. Since inflation, which affects people's lives most profoundly, is likely to remain
high above its target, our monetary policy should continue to focus on achieving price
stability. We will also have to pay particular attention to stability in the financial and FX
markets. While closely monitoring the development of domestic and overseas risk
factors, we will actively implement market stabilization measures if needed.
As part of this process, it is necessary to coordinate policy measures through close
cooperation with related authorities. In our response to instable situations in the market
last year, the Bank of Korea played an active role while ensuring smooth
communication with the government and supervisory authorities. Looking ahead, the
Bank of Korea needs to strengthen communication channels outside of the Bank, and
take a more active stance in our roles.
Finally, I would like to conclude my New Year Speech with some notes on internal
innovation.
As organizational innovation at the Bank of Korea will start on a full scale this year,
many changes are expected to come along with it. Considering that we've come up with
this process of innovation after a series of discussions and careful considerations, I
hope that all of our staff here will see tangible outcomes from it, as we actively
participate in improving the organizational culture and in bringing innovation to our
internal management processes. If there are no tangible results, skepticism will emerge,
which could weaken the driving force behind innovation, so even small achievements
should be made one-by-one. Above all, I hope that our "work diet" will lead to a better
quality of work by allowing our staff to focus their core competencies on high-priority
tasks.
My dear colleagues,
I would like to extend my sincere appreciation once again to all our staff for doing their
utmost in their respective areas, despite the difficult circumstances last year. In
particular, the Bank of Korea was able to faithfully fulfill its mandates thanks to the best
efforts of those in some of the more inconspicuous positions, such as customer service,
facilities operation, security management, business support and cash processing. I
would also like to thank all our staff at regional branches for strengthening their role as
ambassadors of the Bank of Korea. I hope that you can expand your horizons by
communicating with people in your regional communities, while taking pride in the fact
that you are making actual contributions to developing those same communities.
The Bank of Korea stands at a new turning point this year. After several years of
construction, the completion of our new headquarters is just around the corner. In
several months, we will return to where we originally undertook our duties since 1950. I
would like to express my genuine gratitude to those involved in the construction for all
their hard work. With the advent of the post-COVID era, I hope that this new year will be
a year for the Bank of Korea to leap forward in a new environment. As we greet this
new year, I want to wish you and your family all the very best of health and good fortune.
Thank you.