The new BOK governor candidate says that more policy tightening is coming, but at a slower pace than the Fed has been.
SEOUL (Reuters) : Rhee Chang-Yong becomes the next governor of South Korea’s central bank, he or she says the bank will keep raising interest rates. But the rate of rising will be slower than what the US Federal Reserve is expected to do.
In a speech to parliament, Rhee said that the risks to growth were getting worse, but he called for more cuts in the Bank of Korea’s lenient policy settings to keep inflation from rising above the bank’s 2% target.
Rhee said in the speech that there must be an appropriate amount of policy accommodation to keep prices stable without hurting growth. The Bank of Korea will also try to slow down household debt growth in the process.
Last week, the BOK raised its benchmark rate to 1.50 percent, the highest since August 2019. It was doing this to fight high inflation, which was putting its economic recovery at risk, so it did this.
Rhee said that even though inflation is likely to rise over the next year or two, the Ukraine crisis, U.S. monetary policy, and COVID-19 resurgence in China will also have to be taken into account when making policy decisions.
The four rate increases since August of last year have brought the policy rate back to where it was before the pandemic. A lot of people think that BOK and its counterpart in New Zealand are both very hawkish.
A lot of people think the policy rate will rise to 2% by the end of this year. This is because most countries are now moving in the same direction to fight rising inflation.
U.S. rate hikes are possible because the U.S. inflation rate is double ours and its growth rate is between 3% and 4%, but our growth rate isn’t as strong, Rhee said at the parliament.
There was a 5.8 basis point drop in the yield of the most liquid three-year treasury bond by the end of the morning because Rhee said that the pace of tightening would be slower.
Rhee, a longtime member of the International Monetary Fund, is expected to start his four-year term once he is sworn in and goes through the necessary parliamentary hearing.
