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| Bank of Korea governor nominee Lee Ju-yeol takes an oath before his confirmation hearing at the National Assembly in Seoul, Wednesday. / Yonhap |
By Kim Rahn
The nominee for governor of the central bank hinted Wednesday that he would manage monetary policy to bring household debt under stricter control.
In a National Assembly confirmation hearing, Bank of Korea (BOK) governor nominee Lee Ju-yeol said Korea's three most serious risks are debt, a low growth potential and economic polarization.
"Korea's debts are too large compared to the nation's economic capacity, its growth potential is decreasing, and the polarization between big and small companies is serious," he said.
Lee said household debt may not cause a risk to the financial system although the amount surpassed 1 quadrillion won, because a large proportion is held by people in the upper-income bracket.
But he said the nation should pay attention to that held by people in the lower-wage bracket.
"Those people's debts have grown, and their quality has also become worse, with people borrowing money for living expenses. State policy should focus on them."
When asked whether he would raise the base rate if the U.S. and other advanced nations do so — which could make the debt problem more serious — Lee said household debt was not the only factor to consider.
"The BOK should consider not only debt but also other things. The household debt issue is a matter of social safety rather than monetary policy," he said. "Creating jobs will be the best solution to solve the household debt problem."
The bank's former senior deputy governor hinted at more communication with the market, which he said is the key to a successful monetary policy.
He pointed out a communication problem at the time of the base rate cut last year — the market expected the BOK to lower the rate in April in line with the government's stimulus fiscal policy, but the BOK did not cut it until the following month. As a result, outgoing Governor Kim Choong-soo was criticized for failing to read the market.
"I guess the market expected a cut in April because the central bank gave a sign that it would act. The market said the decision was against their expectation, which means the BOK had a communication problem," Lee said.
"Whether a monetary policy succeeds or fails depends on public trust in the central bank. I'll try to make monetary policy more predictable by narrowing the gap between the BOK and the market on the economic situation and outlook."
Lee said the BOK will coordinate policy with the government when needed. "The government and the BOK have respective duties, but their policies influence each other. Harmony between the two is important to enhance the effectiveness of the policies. I'll cooperate with the government, but ensure that the central bank's independence is not damaged."
Regarding Lee's hearing, an economic analyst said he had wiped out market concerns that he was hawkish. Lee had previously said as senior deputy governor that he felt responsible for failing to fulfill the BOK's duty of price stabilization.
"Market watchers worried that he may seek an early rate increase. But he said in the hearing he will consider price stabilization and economic growth first. It is probable that he will not raise the rate hastily against market expectations," he said.
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