Bank of Korea Governor Lee Chang-yong said, "Because Korea must consider financial stability, there is a need to view the neutral rate a little higher than other countries when setting it."
Lee made the remarks in a conversation with International Monetary Fund (IMF) Managing Director Kristalina Georgieva after the "Michel Camdessus Central Banking Lecture" held at the IMF headquarters in Washington, D.C., on the 18th (local time).
Lee said, "As the nonbank financial market has grown rapidly, it has come to account for more than 50% of Korea's financial market," adding, "Nonbank financial institutions are relatively less regulated than the banking sector, raising significant financial stability concerns."
He also explained that, considering financial stability, the neutral rate should be set higher than in other major countries, noting that "during the Silicon Valley Bank (SVB) episode, nonbank financial institutions held deposits exceeding the scope of deposit insurance, highlighting the potential for crisis."
Regarding the "price stability target system," which sets maintaining the inflation target at 2% as a policy goal, he said it is "a good tool that helps you not worry about political pressure," adding, "Whenever there is a request to do something, you can say 'that is not my authority,' and you can maintain a long-term perspective in policy decisions."
On a won-denominated stablecoin, he said, "Some argue that a won stablecoin is needed to counter the spread of dollar stablecoins, but I do not agree," adding, "It could pose a risk to currency system stability." He emphasized in particular that "Korea has capital inflow and outflow regulations, so it is a complex issue."
Before the conversation, Lee delivered the "Michel Camdessus Central Banking Lecture" on the theme "Korea's integrated policy framework (IPF) journey: Challenges and responses in the era of the effective lower bound (ELB)."
In the lecture, he said, "When an emerging economy like Korea falls into structural secular stagnation and rates reach the effective lower bound, it is not desirable to use unconventional monetary policy such as quantitative easing," presenting quasi-fiscal-like policy tools such as lending support for financial intermediation and forward guidance as alternatives.
The Michel Camdessus Central Banking Lecture has been a venue since 2014 where the IMF shares insights with member Central Banks on global economic and financial issues. In Central Bank circles, it is regarded as one of the three major events along with the Federal Reserve's "Jackson Hole Economic Policy Symposium" and the European Central Bank (ECB) "Sintra Forum."