[이창용號 한은] The ‘higher level equation’ of inflation and liquidity needs to be solved… Homework Mix Policy

From inflation to liquidity crisis… Solving higher order equations
The BOK-Government ‘policy mix’ is becoming more important than ever
Independent financial policy under pressure from political circles
Expert “It’s been good so far, but it won’t be easy in the future”

As the crisis of high inflation and low growth deepens, the ‘policy mix’ of the government and the Bank of Korea is emerging as a hot topic. Deputy Prime Minister and Strategy and Finance Minister Choo Kyung-ho and Bank of Korea Governor Chang-yong Lee showed cooperation from the start of their inauguration by shouting ‘strengthen the policy mix’, but were shaken as they faced a liquidity crisis as well as prices and exports. As President Lee, who celebrated his 200th day in office, he is tasked with achieving the BOK’s priority goal of price stability, while also achieving growth and financial stability through collaboration with the government.

According to the financial sector and the academic world on the 4th, as uncertainty in the financial market grows due to successive interest rate increases in major countries such as the United States, the importance of a policy that converges the government’s fiscal policy and the monetary policy of the central bank. is growing Governor Lee and Deputy Prime Minister Chu also met a total of 8 times (2 breakfast meetings, 6 non-macroeconomic and financial meetings) between May 16 and the previous day, and continue to discuss public policy once a month. Deputy Prime Minister Choo recently met with reporters and showed trust by saying, “I have similar thoughts with President Lee. There has never been a single conflict.”

In fact, it is not easy for the Bank of Korea to raise interest rates in a crisis situation to stabilize inflation and the government, which should encourage growth, come together with one voice. The Lee Myung-bak administration, which suffered the financial crisis in 2008, is a prime example. At that time, as inflation increased and growth slowed, there was a power struggle between the BOK and the Ministry of Strategy and Finance. As there is no enforcement power, the right to speak is actually used for the purpose of pressuring the member of the Monetary Board to cut interest rates.

Deputy Prime Minister of Economy Choo Kyung-ho and Bank of Korea Governor Lee Chang-yong attend the ‘Macroeconomic and Financial Crisis Conference’ held at the Bank Hall in Jung-gu, Seoul on the 23rd and speak before start the meeting. / Reporter Yoon Dong-ju doso7@

Although the relationship between Deputy Prime Minister Choo and Governor Lee is closer than in the past, the problem is that despite these efforts, many economic indicators such as inflation, interest rates and exchange rates are still declining. The inflation rate in October was 5.7%, which was wider than the previous month, and Gyeonggi Province is expected to worsen next year, making it harder than ever for the BOK to make monetary policy decisions. the front. In particular, the BOK is in the dilemma of supplying liquidity in the bond market while maintaining the policy of raising interest rates to stabilize inflation.

As Governor Lee, his task is to promote an ‘independent monetary policy’ that is free from pressure from the government and the National Assembly, which will be at its peak due to slower growth, rising household debts, and a more intense financial tightness in the bond. market. Indeed, People’s Strength lawmaker Yoon Chang-hyeon said on the 1st, “The opinion of the Financial Services Commission needs to be conveyed to the BOK, including the right to speak up.”

Experts evaluated that Governor Lee performed relatively well in terms of communication with the market and government cooperation over the past 200 days, but predicted that the situation would not be easy in the future. Kim Jin-il, a professor of economics at Korea University, who worked as a senior economist at the US Federal Reserve, said, “As the liquidity crisis occurred, the BOK was in a very difficult position to solve a higher level equation. “We need a comprehensive response as we have come to a situation where we have to look not only at prices but also the real economy through the financial crisis and the COVID-19 crisis,” he said.

Reporter Moon Win nyth2639@asiae.co.kr