BOK chief's reappointment a sign of bank's independence
Published : Mar 2, 2018 - 17:43
Updated : Mar 2, 2018 - 17:43

Bank of Korea Gov. Lee Ju-yeol, a veteran monetary policy expert with a career spanning 41 years at the central bank, is widely seen as an advocate of the bank's independence who has promoted better communication with the market.

The reappointment of Lee, 66, comes at a critical time for the South Korean economy, which has been grappling with mounting household debt and weak consumption.

It is the second time that a BOK governor has been reappointed, but no governor has been nominated for a second term since the 1970s.

The reappointment is a sign that President Moon Jae-in's administration has confidence in Lee's abilities to stabilize inflation and help maintain the bank's independence from government policies.

Shortly after the presidential office made the announcement of Lee's reappointment, the governor told reporters that the chance to serve another term is an "honor" for him and the bank.

"I am feeling a heavier responsibility than four years ago when I was first nominated," Lee said, adding that he will spare no effort to tackle challenges facing the South Korean economy.

Bank of Korea Gov. Lee Ju-yeol (Yonhap)

Bond traders appear to have interpreted Lee's reappointment as hawkish.

The yield on three-year Treasurys gained 2.4 basis points to rise to 2.290 percent, and the return on benchmark five-year government bonds added 2.5 basis points to 2.544 percent.

Lee Mi-seon, a researcher at Hana Financial Investment, said some market players had expected the BOK to raise its key rate in May, but a rate hike in April has become plausible with Lee at the helm again.

Kim Jeong-shik, a professor at Yonsei University, said Lee has been credited with taking monetary policy steps to prevent South Korea's economy from losing steam over the past four years.

The National Assembly will hold a hearing on Lee in the coming days, although it does not have the power to veto Lee's reappointment.

BOK raised its key rates to 1.5 percent last November, marking the first rate hike in more than six years. This year, Lee has hinted that additional hikes may be gradual.

In the short term, Lee is facing challenges as the US Federal Reserve and other central banks are likely to increase key rates at a faster pace than anticipated. 

If the Fed raises its key rate this month, the interest rate gap between South Korea and the US will be reversed.

Analysts said expectations of more hawkish US monetary policy may put the BOK in a tight spot, as a higher key rate in the US compared to South Korea could be a destabilizing factor for a national economy burdened with high household debt.

Lee "needs to manage risks, including a possible capital outflow" in case of rate hikes in advanced economies, Kim said.

"At home, Lee's challenge is how to improve the domestic economy at a time when the economic rebound is weak and unemployment poses serious challenges," Kim said.

Although exports have shown strong signs of growth, South Korea's economy is being weighed down by a steady rise in household debt and protectionist moves around the globe.

South Korea's household debt stood at 1,450.9 trillion won ($1.34 trillion) at the end of last year, up 8.1 percent from a year earlier, according to BOK data.

After leaving the key rates unchanged at 1.5 percent last week, the BOK said it "will conduct monetary policy so as to ensure that the recovery of economic growth continues and consumer price inflation can be stabilized at the target level over a medium-term horizon."

"As it is forecast that inflationary pressures on the demand side will not be high for the time being, while the domestic economy is expected to continue its solid growth, the board will maintain its accommodative monetary policy stance," the BOK said in a statement. (Yonhap)