HIGHLIGHTS-BOK governor-nominee's comments at parliament hearing

SEOUL, March 19 Wed Mar 19, 2014 2:43am EDT

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SEOUL, March 19 (Reuters) - The Bank of Korea's nominee-governor, Lee Ju-yeol, a former senior deputy governor at the central bank, is expected to be appointed by President Park Geun-hye after a parliamentary hearing on Wednesday.

Lee was questioned on a range of key issues, including South Korea's household debt, inflation and future monetary policy at the central bank. Once appointed, Lee will take office April 10.

Following are key remarks from Lee at the hearing, translated by Reuters:

GLOBAL ECONOMY:

"Advanced economies seem to be shedding the shock of global financial crises, whereas now emerging economies are losing steam."

"Should the U.S. Federal Reserve decide to taper its stimulus again this week, the effect on South Korean markets will be limited. Markets have already priced this in."

"From an emerging economy's point of view, I hope the U.S. takes into consideration other countries' situations when it comes to stimulus tapering. I hope the U.S. looks at the effects its policy has (on other countries). Meanwhile I believe they are trimming their stimulus because they have confidence (in their economy)."

"The Chinese economy has had many struggles from the past. This is because it carries fundamental issues...but the Chinese government has done well so far in handling them despite concerns. The most recent issues raised there (will probably be solved similiarly) although there may be risks under the surface."

DOMESTIC ECONOMY:

"A decline in the workforce and investments by companies has dulled growth. South Koreans are concerned whether the economy will turn into one similar to Japan's economy."

"The biggest problem South Korea's economy faces is that its potential growth is falling."

"Other big issues that South Korea's economy has are the polarisation of wealth in the economy and burgeoning household debt."

"The South Korean economy can no longer run towards just growth; I believe achievements must be distributed evenly -- that growth and distribution must come in harmony."

DEBT

"Household debt not only pressures growth but it is narrowing the extent of the central bank's monetary policy."

"Household debt in the low-income sector is likely better resolved through government policy and job creation (than monetary policy)."

"The central bank has many limits when it comes to household debt. It is important that the rise of debt does not outpace the increase of household incomes. In order for incomes to rise, growth is essential and the central bank must strive for stable economic growth."

MONETARY POLICY:

"I think there was a problem with communication with markets when the central bank lowered rates in May 2013."

"Looking back on the events in 2008, I believe there is criticism for the Bank of Korea to be had. We raised rates then as inflation was up to the 4 percent range and expected inflation was very high. However, we did not know that (the Lehman crisis) would occur...none of us knew that there would be such a huge crisis."

"The central bank lost its trust from markets once market participants felt the Bank of Korea was not acting on its promises."

"I will strive to narrow the gap between the view of the central bank and markets regarding current economic issues and future situations."

"Forward guidance is a policy that we may well refer to. We are open to looking at utilising this policy, although our situation is quite different from advanced economies where forward guidance is currently being used."

CENTRAL BANK INDEPENDENCE:

"It's true that there is a need for cooperation in policy (between the central bank and the government) in order to heighten policy effectiveness and improve the economy's growth."

"It is an important goal (that the central bank) keep its neutrality from (government bureaus) involved in financial policies...When deciding on monetary policy I plan to keep the balance between keeping stability in inflation, financial stability and growth, as the law states."

"My participation in meetings with the Blue House (presidential palace) will be decided based on the issues discussed there...I will selectively choose to go to the meetings based on how the issues are related to monetary policy and government policies."

INFLATION:

"If the central bank keeps changing the inflation target band, problems with effectiveness could arise."

"Inflation now in the 1-percent range is quite low and out of our target range from 2.5 to 3.5 percent, but this was largely attributed to supply factors, which out of the central bank's control."

"The central bank will keep the current target band because on a mid-term basis, we expect (inflation will rise to that level)."

"I believe it is serious that despite the fact that we have an inflation target range, inflation has fallen far outside the range that it has led to trust issues (with the public and markets)." (Reporting by Christine Kim; Editing by Eric Meijer)

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