Deputy Prime Minister and Finance Minister Lee Hyoung-il and Bank of Korea Governor Shin Hyun-song agreed to jointly review interconnected risks across the bond, currency, property and household debt markets and to respond to threats pre-emptively. The aim is to examine not only movements in individual markets but also the channels through which interest rates, exchange rates, asset prices and household debt influence one another.
Lee visited the BOK on the morning of Sept. 28 for talks with Shin. The visit came six days after Lee took office on Sept. 22. "Interconnectedness among the bond, currency, property and household debt markets is increasing, so we need to look at movements across multiple markets together," Lee said in his opening remarks. "Rather than stopping at macroeconomic indicators, I want to examine risk factors across the economy one step ahead and further solidify the framework for pre-emptive response."
The areas of cooperation Lee outlined also centered on linkages between markets: policy coordination toward the shared goals of price stability, growth and financial stability; integrated monitoring of financial market volatility and its links to the currency and asset markets, along with early identification of and response to risks; and cooperation on future tasks such as internationalization of the won and digital finance, as well as on raising the potential growth rate.
The plan to monitor the financial, currency and asset markets together in particular dovetails with the integrated market monitoring approach the government presented in its second-half economic growth strategy in July. At the time, the government said it would run integrated market monitoring meetings to manage the macroeconomy alongside the financial, currency and property markets in a comprehensive manner, and would strengthen macroprudential cooperation among relevant agencies.
On recent economic conditions, Shin assessed that although external shocks including the conflict in the Middle East and rising long-term government bond yields in major economies have continued, the exchange rate has stabilized and growth has broadened. He noted, however, that cost factors and an unusual increase in income could heighten upward pressure on prices and amplify risks of financial imbalances.
Shin explained that the BOK's recent monetary policy response could help stabilize the exchange rate and ease cost pressures by curbing demand-side price pressures while bolstering confidence in the economy. He stressed that it could also contribute to easing financial imbalances alongside the government's macroprudential policy.
That is precisely where coordination between the government and the central bank is needed. Because changes in interest rates affect the bond market and the exchange rate, and shifts in the exchange rate and asset prices in turn affect financial imbalances and prices, officials judge that managing any single market in isolation is difficult.
"I hope today's meeting goes beyond a simple introductory session and becomes an occasion for cooperation between the government and the Bank of Korea to advance another step," Lee said. "I will communicate and listen more often." Shin said that while each institution faithfully carries out its own mandate, they should share their reading of economic conditions and communicate closely when necessary to enhance the complementarity of their policies.
The two sides agreed to continue communication and cooperation through existing frameworks such as market condition review meetings and through various other channels. Lee drew attention by wearing a blue tie, the color associated with the Bank of Korea, for the visit.
