Changyong Lee, Governor of the Bank of Korea: "No Decision on Rate Cut in February"

Changyong Lee, Governor of the Bank of Korea, stated that "a decision to lower the base rate has not been made" at the Monetary Policy Committee meeting on the 25th. Regarding all committee members leaving open the possibility of a cut in three months, he said, "We can change our minds based on new evidence," curbing excessive expectations for a rate cut.

Governor Lee made these remarks in an interview with Bloomberg in Tokyo, Japan, on the 6th. He is in Japan to attend the Bank of Japan-hosted BIS Global Financial System Committee (CGFS) and Committee on Payments and Market Infrastructures (CPMI) expert meetings. Governor Lee chairs the CGFS.

In the interview, Governor Lee emphasized the need for fiscal policy. He believes that an additional supplementary budget of 15 to 20 trillion won is necessary to recover the economy, which has been contracted under martial law. Governor Lee noted, "The Korean fiscal authorities have maintained conservative fiscal policies over the past few years," and pointed out that there are "more fiscal resources available" to use when the economy faces a crisis.

Regarding the pace of rate cuts, he mentioned, "There is a lot of criticism domestically for not lowering rates more aggressively." However, regarding market expectations for a rate cut in February, he said, "It may not necessarily happen." He believes it could be influenced by the timing and scale of fiscal policy announcements.

On all six committee members, excluding the governor, leaving open the possibility of a rate cut within three months, he emphasized that "forward guidance is conditional." He explained, "If there is new evidence, we can change our minds based on that evidence," and "that is the principle of monetary policy."

Regarding the exchange rate in the mid-1400 won range, he said, "I don't want to call it the new normal," as "saying so could imply that we have a specific exchange rate in mind." However, he acknowledged that the exchange rate is an important consideration. He stated, "I don't want to add fuel to the rapid depreciation of the exchange rate," and "we will watch the exchange rate but not target a specific level."

Kang Jin-kyu, josep@hankyung.com