BOK chief says central banks need innovation

The chief of the Bank of Korea (BOK) said Monday that central banks need to look for ways to deal with the new economic environment and that their monetary policies are becoming less effective after a decade of low interest rates.

“A lower neutral interest rate means that we have less room for policy rate cuts in the face of the economic downturn,” BOK Gov. Lee Ju-yeol said in a welcoming speech at the BOK International Conference in Seoul. “It makes the interest rate more likely to reach its lower bound, making it difficult for us to address business cycles.”

The two-day conference will open Monday with a number of renowned economists and experts in attendance, including Robert Hall from Stanford University and Thomas Sargent from New York University.

After years of quantitative easing by the central banks of world economic powerhouses, countries have lowered their interest rates to near zero. The U.S. Federal Reserve kept its policy rate near zero for several years in a bid to get out of an economic recession stemming from the 2008 global financial crisis.

The BOK also lowered Korea’s base rate to a record low of 1.25 percent to support the economy.

“People feel greater uncertainty about our policies as both the overall environment and the responses are changing,” Lee said.

Yonhap