According to Reuters, a Bank of Korea official stated on Wednesday that the central bank would not consider cutting interest rates to zero for the time being, as it needs to preserve certain policy space to support the ongoing corporate restructuring.
Lee Ju‑yeol, Governor of the Bank of Korea, remarked in a parliamentary speech that multiple factors constrain the central bank from adopting a zero‑interest‑rate policy. “In the event of sudden market turbulence, the Bank of Korea needs to impose stricter scrutiny on foreign capital. Although we may appear overly slow to react on the surface, there are in fact many circumstances we have to take into account.”
Lee Ju‑yeol said that before altering the current record‑low interest‑rate policy of 1.25 %, the central bank must consider concrete conditions including economic growth, financial circumstances, and large‑scale restructuring in the shipbuilding industry. Faced with huge losses, South Korean shipbuilders are rolling out a series of restructuring measures. Under the restructuring plan, the three major shipbuilders will cut total production capacity by 20 % and reduce their total workforce by 30 % over the next two‑and‑a‑half years. Accordingly, the government is awaiting parliamentary approval for an extra budget of 11 trillion South Korean won (USD 9.68 billion) to cushion economic shocks potentially brought by corporate restructuring. He also noted that Bank of Korea policies would focus on supporting economic growth rather than maintaining price stability, since South Korea’s economy shows no risk of rapid inflation at present.
Lee Ju‑yeol had just attended the G20 Finance Ministers and Central Bank Governors’ Meeting held in Chengdu, China, on July 23‑24. Finance ministers from participating countries pledged to bolster global economic growth, share the benefits of trade, and jointly cope with adverse impacts caused by Brexit.
He further commented that monetary and fiscal policies were becoming less effective in improving economic conditions, while global trade‑protectionism was on the rise. Regarding accommodative monetary policy, Lee Ju‑yeol stated: “Central banks around the world keep issuing warnings against excessively loose monetary policy.”
The much‑discussed “helicopter money” policy was also addressed during the G20 meeting. Participants ruled out its implementation for the time being and pointed out that “helicopter money” lacked legitimacy worldwide, as central banks would become appendages of fiscal authorities and lose their independence.