Bank of Korea Gov. Rhee emphasizes central bank collaboration

Bank of Korea Governor Rhee Chang-yong speaks at the Bank of Korea International Conference 2022 held at the Westin Josun Seoul on Thursday. [BOK]

Central bank policy coordination is now more important than ever, according to Bank of Korea Gov. Rhee Chang-yong.

"Historically, the role of central banks has changed when faced with major economic and financial crises," he said at the Bank of Korea International Conference 2022 held at the Westin Josun Seoul on Thursday.

The Great Depression in the 1930s served to highlight the macroeconomic stabilization function of monetary policy, while the 1970s oil shocks and the ensuing inflation established price stability as a primary objective of central banks, he said.

In the aftermath of the Covid-19 crisis "central bankers started to publicly emphasize collaboration on a full range of economic policies — not only monetary policy but also fiscal and structural policies — in a comprehensive, consistent and coordinated manner," Rhee said.

Since taking the office in April, Rhee has stressed coordination with the government. He met Finance Minister Choo Kyung-ho last month to share views on the economy and to find ways to work together, according to the Bank of Korea.

In comments Thursday, he also recognized the severity of inflation.

He said there is now clear evidence that underlying inflation and long-term inflation expectations have ratcheted upwards to levels in some countries that are well above their stated objectives. But he added that the chance of returning to a very low inflation and low growth environment again is significant.

"Compared with their historic average, inflation in emerging market economies has not reached the high levels advanced economies currently face, but this should be no reason to feel relieved about the future."

He added that the use of asset purchase programs in emerging economies was possible because they were implemented in response to common global shocks and expansionary fiscal and monetary policies.

The international conference took place under the theme of the changing role of central banks and what the banks can and should do. It was attended by Robert Townsend, an economics professor at the Massachusetts Institute of Technology, and Shin Hyun-song, an economic advisor and head of research at the Bank for International Settlements.

BY JIN MIN-JI [jin.minji@joongang.co.kr]