BOK board members call for further rate hikes amid rising inflationary pressure: minutes

BOK Gov. Rhee Chang-yong / Korea Times file

Members of the central bank's rate-setting board called for further rate hikes after deciding to raise borrowing costs in April, saying the current interest rate level remains still "accommodative" amid worries over rising inflationary pressure, minutes from the latest policy meeting showed Tuesday.

In the April 14 rate-setting meeting, the monetary policy board of the Bank of Korea (BOK) voted unanimously to hike the policy rate by a quarter percentage point to 1.5 percent.

This marked the fourth rate increase since August last year, as it grapples with inflation running high amid soaring energy prices and a rebound in demand from the COVID-19 pandemic.

The rapid rate hikes come after the BOK had maintained borrowing costs at record lows for about two years to stave off a recession from the pandemic, but market watchers worry steep increases could stymie economic growth.

"It is possible that a rate hike and resulting rises in market rates could put a drag on economic recovery, but stabilization in inflation expectation is a prerequisite to respond to price shocks based on historic experiences and from a theoretical perspective," an unidentified member said.

"Despite a rate hike this time, the interest rate level still remains accommodative," the member added. "The more clear and conspicuous danger at this time must be responding to inflation."

Another member called for stepped-up efforts to keep a lid on inflation expectations among ordinary economic players, as worries are growing that it is not expected to be transitory.

"It is necessary to preemptively act in order to stably manage inflation expectations in a way that it does not emerge as an additional burden on efforts to determine the direction of our economy, and our choice of options for monetary policy down the road," the member said.

The member underlined the need to set the "appropriate speed" at which monetary policy should be tightened by taking into account inflation, economic conditions and financial stability.

The central bank is set to hold its next rate-setting meeting May 26, the first such meeting to be presided over by new BOK Gov. Rhee Chang-yong, who took office last month. (Yonhap)