equity investment, but now a considerable portion of capital inflows is invested in local currency - denominated longerterm bonds – this change has made foreign capital flows much more stable. on the other hand, the development of fixed income markets in the region has also brought new difficulties. first, as foreign investors hold a greater share of bonds in the region, bond yields are greatly affected not only by domestic economic developments or monetary policy, but also by global economic conditions. in addition, there are increased concerns about financial and foreign exchange market unrest in the event of a sudden reversal of capital inflows to the regional bond markets. there have recently been dramatic changes in global economic environment, including the continuing monetary policy normalization by the u. s. federal reserve and the rising trade tensions between the u. s. and china. in fact, some emerging market economies with weaker fundamentals have experienced large - scale capital outflows, resulting in more volatile stock prices, exchange rates and interest rates. so far, we have seen that the development of the fixed income market in the asia - pacific region has greatly contributed to better market functioning and a better policy environment, while 1 / 2 bis central bankers'speeches creating no small difficulties. against this backdrop, allow me to suggest some policy tasks that countries in the region must first pursue to enhance financial and economic stability. to begin with, we must enhance the overall resilience of the regional economy so that sudden changes in capital flows triggered by external shocks do not lead to systemic risk. to this end, we must reinforce our capacities and policy space to properly respond to external risks. this may be done by improving current account balances, holding sufficient foreign reserves, and enhancing exchange rate flexibility. next, we must continue our international cooperation to reinforce financial safety nets. asiapacific countries have striven to establish regional financial safety nets and develop fixed income markets through the chiang mai initiative multilateralization ( cmim ), the asian bond markets initiative ( abmi ), and the asian bond fund ( abf ). we also need to continuously expand our cooperation not only within the region but also with international organizations such as the imf and bis to strengthen global financial safety nets. last but not least, we have to continue our policy efforts to strengthen fixed income market infrastructure and functioning, such as by seeking diverse investors, making corporate bond markets more vibrant, and improving the processes for bond issuance and trading. i believe that these efforts would expand both

new year speech january 2, 2019 juyeol lee governor the bank of korea dear fellow members of the bank of korea! today we start our first tasks of 2019, filled with new hope and resolve. i would like to begin by expressing my heartfelt gratitude to all of you, for so faithfully carrying out your duties throughout the last year. the korean economy went through some difficult times last year, due to the heightening of uncertainties at home and abroad. volatility in the international financial markets increased frequently, in line with the worsening of the global trade environment and with the financial instabilities suffered by some emes amid the series of policy rate hikes by the us federal reserve. thanks to our strong international credit standing we were fortunate enough to maintain stability in korean markets overall, but we still had to remain vigilant. looking at the real economy, the rate of growth did not deviate far from its potential level, but employment remained sluggish and economic agents ’ sentiments weakened. the growth in household debt continued to outpace that in household income, leading to concerns that this could undermine financial stability. in these circumstances the bank of korea maintained the degree of its monetary policy accommodation, mindful of the diverse risk factors that could negatively affect the real economy, until in november it then raised the base rate by 25 basis points in consideration of the possibility of the financial imbalances worsening. 1 / 8 dear members of the bank of korea! this year the korean economy appears likely to maintain a pace of growth similar to last year ’ s. but there still seems to be a tough road ahead of us, both at home and abroad. there are possibilities that the uncertainties about the monetary policy normalization in the us and the us - china trade conflict could lead international financial market volatility to increase and undermine global economic growth. with its high degree of capital market openness and heavy dependence on external trade, korea could be particularly vulnerable to the impacts of changes in external risks. we will need to be mindful of and prepared for these possibilities. we should also pay close attention to the fact that the growth potential of the korean economy is continually weakening. the productivity growth in our major industries is slowing, while accumulating capital through investment has become difficult as our economy now enters its mature stage. the reduction in our workingage population in consequence of low birthrate and aging population is also weakening our growth potential. i think the concerns about our economy ’