Juyeol Lee: Bank of Korea's 66th anniversary
Speech by Mr Juyeol Lee, Governor of the Bank of Korea, at the commemorating ceremony
of the Bank of Korea's 66th anniversary, Bank of Korea, Seoul, 10 June 2016.
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Dear fellow members of the Bank of Korea family,
Today marks the 66th anniversary of the Bank of Korea's foundation. On this happy occasion
I would like to express my sincere gratitude to all those who served before us in the Bank of
Korea over the years, devoting themselves to the development of our Bank and the national
economy, and to those who have supported and encouraged us during this time as well. Let
me also express my compliments to each and every member of our current staff, for so
faithfully carrying out the duties entrusted to you.
Our economy exhibited growth in the mid-2 percent range last year, below our potential growth
rate, and it has not shown any clearly marked recovery this year either. The trend of declining
exports continues, the improvement in domestic demand such as consumption and investment
has been unsatisfactory, and the sentiments of economic agents remain sluggish. Consumer
price inflation is also substantially below its newly set 2 percent target.
To cope with these economic conditions, the Bank of Korea greatly increased the support
provided under its Bank Intermediated Lending Support Facility in March of this year, and
yesterday cut its Base Rate to 1.25 percent per annum.
In view of domestic and external economic conditions, however, it seems unlikely that our
economy can easily emerge from its trend of low growth and low inflation in the near future.
First, it is difficult to expect any remarkable improvement in our exports, due to the delays in
economic recovery in major countries and the consequent slowdown in growth of world trade.
The euro area and Japan have adopted quantitative easing policies and negative policy rates,
but the concerns about possible long-term low growth there have persisted. The US economy
has exhibited relatively solid growth so far, but given the slowing pace of its improvement in
employment the markets expect the US Federal Reserve to delay its policy rate hike. And
China, our largest trading counterpart, amid the slowing of its pace of economic growth is also
shifting to a domestic demand-centered growth strategy.
The structural factors limiting our domestic demand recovery persist as well, such as our low
birth rate and population aging, the buildup in household debt, and excessive slack in
manufacturing capacity. And given the corporate restructuring planned going forward, the
consumption and investment sentiments of economic agents may contract further.
Against this backdrop, in order to help restore our economy's vitality it is important, along with
our implementation of accommodative monetary and fiscal policies, that we carry out structural
reforms consistently. In the absence of structural reform our macroeconomic policy will not
generate the desired effects, and we will only find our policy space being exhausted.
We should also devote great efforts to discovering and nurturing new growth engines, which
can drive our economy going forward. We need to create new industries and new markets, by
investing actively in and fostering digital innovation, the so-called "4th Industrial Revolution",
which is progressing rapidly especially in some advanced countries.
Together with this, we should also work to expand employment. In the past, it was understood
that the role of employment was limited to supporting the demand for labor following economic
growth. However, as discussed during last month's Bank of Korea International Conference
on Employment and Growth, attention is now focusing on the role of employment in leading
growth.
Dear fellow members of the Bank of Korea,
I would like to touch now on the tasks that we will need to focus on from the latter half of this
year.
Moving forward we must maintain our accommodative monetary policy stance, with a focus on
revival of the domestic economy. This will also work to lessen the negative short-term impacts
of corporate restructuring on production, employment and the sentiments of economic agents.
Second, given the long period of monetary easing undertaken to this time, we will need to pay
even more attention to financial stability. It is essential to keep a closer eye on developments
related to household debt, which has been maintaining a trend of high growth recently, and to
carry out macroprudential policies as necessary in a timely manner in consultation with the
government and the supervisory authorities. With the prolongation of our low interest rate
stance, economic agents' risk appetites are likely to grow, and imbalances in the financial
system in consequence likely to build up. We should therefore devote more attention to these
imbalances. We should also not spare efforts in examining the potential risks that can cause
expansions in financial market volatility at home and abroad, such as the uncertainties
surrounding the US Fed's monetary policy normalization process, and the potential for a
resurfacing of financial and economic unrest in China.
If a credit crunch or any other financial instabilities occur in the course of corporate
restructuring, the Bank of Korea will have to respond actively through use of various policy
tools, including open market operations and its lending facilities. Although the recapitalization
of state-owned banks, where worsening capital adequacies are feared, is an issue that should
in principle be addressed through fiscal measures, the Bank of Korea has decided to also take
part in this project, as a precaution against financial system instability. And going forward the
Bank of Korea must do its utmost to fulfill its role in achieving the desired goals, while
maintaining its fundamental principles.
We also need to step up our efforts devoted to policy communication. To achieve effective
communication there is nothing more important than heightening the accuracy of evaluations
of and forecasts for economic conditions, and then delivering consistent policy signals to the
market based upon them. The Bank of Korea needs to continuously improve its monetary
policy decision statements, while expanding its channels of communication with economic
agents. From this year on we have accountability to provide the public more detailed
explanations of our inflation targeting operations. We will therefore have to fulfill this
responsibility faithfully, and by doing so will ensure enhanced public understanding of and
confidence in our monetary policy.
Dear fellow members of the Bank of Korea,
Given the challenging conditions facing the Korean economy, expectations of the role of the
central bank have become higher than ever. The policy environment around us can however
be described as one of "radical uncertainty," since the directions and speed of changes are
very hard to understand. Against this backdrop, if we hope to lay out policy alternatives that
reflect reality well, then we should change our fundamental patterns of behaviour and thinking
decisively. We should also listen carefully to new ideas, with flexible thinking and open minds
free from the influence of past custom.
However, this does not mean that we can overlook the basic principles of a central bank. If we
are bent on keeping step with external changes without deep reflection, then we may easily
forget where we stand and what the raison d'etre of a central bank is. We must bear in mind
the fact that the central bank has to conduct its policies from the long-term perspective of the
national economy as a whole, rather than being distracted by short-term outcomes.
As in any organization, it is IT sector capability that will determine the Bank of Korea's
development in this 4th Industrial Revolution era. We will therefore have to review how we can
change our IT-related work processes, and what areas need supplementing, and if necessary
streamline our organization structure accordingly. Given its growing importance, our payment
and settlement sector must be enhanced. We should also devote concerted efforts to
strengthening our capacities for responding to cyber threats, which have been increasing
recently.
It is also important to improve our HR and wage systems in ways that heighten the expertise
and diversity of our staff, and focus more on efficiency and competition. We plan to implement
certain proposals that we have reviewed in this regard, after soliciting the opinions of staff. The
Bank of Korea is currently pursuing construction of an integrated annex building and the
remodeling of its headquarters building. We must devote our best efforts to ensure that our
new buildings are safe and practical, while being dignified as well.
Dear fellow members of the Bank of Korea!
I would like to urge each of you to continue devoting your very best efforts in carrying out the
duties entrusted to you, with strong responsibility and pride as members of our nation's central
bank, as you have always done until now. Please remember that, as I have emphasized many
times, we are required to maintain much higher levels of morality than other people.
In drawing my remarks to a close, I should like to express my gratitude to all of those who have
participated in the preparation of this commemorative event, and I wish you all and all of those
whom you hold dear the very best of good health and happiness.
Thank you.