 |
A photo of Lee Chang-yong, Governor of the Bank of Korea. (Photo: Yonhap News) |
[Alpha Biz= Paul Lee] The Bank of Korea (BOK) kept its benchmark interest rate at 2.50% during its first monetary policy meeting of the year on January 15, marking the fifth consecutive rate hold. Governor Lee Chang-yong stated that exchange rate movements played an undeniable role in the decision.
Speaking at a press briefing following the rate decision, Governor Lee analyzed the recent rise in the won, noting that roughly three-quarters of the increase was due to external factors such as a stronger U.S. dollar, a weaker yen, and geopolitical risks, while the remaining quarter was attributable to domestic supply and demand factors.
Governor Lee rejected calls to raise interest rates solely to curb the exchange rate. “BOK’s monetary policy is not based on the exchange rate itself. Instead, we consider the impact of the exchange rate on inflation,” he said. “To suppress the exchange rate through rate hikes, we would need to raise rates by 2–3 percentage points, which would impose significant hardship on many people.”
Addressing concerns about a potential financial crisis from a high exchange rate, Lee emphasized that South Korea is a net external creditor. “Even if the exchange rate rises, it does not trigger the kind of financial crisis we faced in the past, when companies struggled to repay foreign-denominated debt,” he said. He noted that the country currently has abundant dollar liquidity and cautioned that market participants expecting further won depreciation may only be lending dollars in spot markets rather than selling them, contributing to volatility.
Governor Lee also strongly dismissed claims that excessive liquidity was driving the currency depreciation. “I have never encountered a theory suggesting that Korea’s M2-to-GDP ratio, two to three times higher than other countries, implies excessive liquidity,” he said.
On domestic real estate, Lee added that interest rate policy alone is unlikely to fully cool the housing market, emphasizing the need for comprehensive government measures. “The Seoul metropolitan area’s housing prices have been rising at an annualized rate of 10%, and we need to monitor the impact on household debt,” he said.
The rate decision was unanimous among Monetary Policy Committee members. Regarding three-month forward guidance, Governor Lee noted that five of the six members expected rates to remain at 2.50% over the next three months, reflecting the view that current economic conditions are likely to persist. The remaining member suggested keeping open the possibility of a rate cut. This marks a shift from the 3–3 split in the committee during the November meeting, indicating a stronger consensus for holding rates.
알파경제 Paul Lee 특파원(hoondork1977@alphabiz.co.kr)
