Bank of Korea Governor Changyong Rhee, wrapping up his four-year term, said Thursday he takes pride in bringing inflation back to the 2 percent range ahead of central banks in other major economies.
"We lowered inflation, which had risen due to the Russia-Ukraine war, through interest rate policy," Rhee said at a farewell ceremony held at the BOK annex building.
When Rhee took office in 2022, global inflation was accelerating in the wake of the Russia-Ukraine war. To stabilize prices, the BOK raised its benchmark rate to 3.5 percent, including two unprecedented "big step" hikes of 0.5 percentage points each — the first such moves in its history.
"Financial stability was threatened by real estate financing instability and the fallout from the collapse of Silicon Valley Bank in the United States, and the economy even contracted amid the unprecedented situation of martial law," Rhee said. "Although our economy has been continuously tested by U.S. tariff policy and a surge in the exchange rate caused by the Middle East war, we managed the crisis well."
He added, "We also improved communication with the market by introducing Korean-style forward guidance, and strengthened our policy advisory role through more than 20 structural reform reports." He continued, "I consider it meaningful achievements that I became the first central bank governor from a non-reserve-currency country to chair the BIS Committee on the Global Financial System (CGFS), and that we led the household debt ratio — which had only risen over the past two decades — into a declining trend for the first time."
Looking back on the past four years, Rhee diagnosed that achieving economic stability and growth through monetary and fiscal policy alone has become increasingly difficult. "Even as the influence of monetary and fiscal policy gradually weakens along with changes in the economic structure, public expectations of the role of policy authorities remain at a high level based on past successes, widening the gap between the two," he said.
He pointed to the foreign exchange market as an example, noting that while it was once largely driven by capital inflows and outflows of foreign investors, it is now also significantly affected by residents such as domestic companies, individuals and the National Pension Service. He also stressed that an era has arrived in which outbound investment by Koreans fluctuates widely based not only on interest rate differentials but also on various factors including the labor market, tax policy, the pension system and global geopolitical risks.
"If we try to manage the exchange rate through foreign exchange market intervention or interest rate policy alone, as in the past, without institutional efforts to improve these realities, greater side effects could arise," Rhee said. "The issues of low birth rates and low growth also demand that we coordinate interests and conflicts through structural reforms in areas such as labor and education, even at the cost of pain, rather than through short-term prescriptions like monetary and fiscal policy."
Against this backdrop, the BOK has released a series of structural reform reports on topics such as education and labor since Rhee took office, sending messages to society. "Four years ago in my inaugural address, I said the Bank of Korea should become 'the nation's top think tank, going beyond the fence of monetary and financial policy,'" Rhee said. "Since structural reform is an ongoing task, I hope the Bank of Korea will continue to research medium- and long-term agendas to resolve the structural problems facing our economy, including education, housing, balanced development, youth employment and elderly poverty."
