Rhee stresses central banks' role as inflation fighters, hints at additional hikes

The Korea Times

The Korea Times

Finance

Mon, October 2, 2023 | 02:46

Economy

Rhee stresses central banks' role as inflation fighters, hints at additional hikes

Posted : 2022-06-10 16:21

Updated : 2022-06-12 14:38

Bank of Korea (BOK) Governor Rhee Chang-yong delivers a commemorative speech during the BOK's 72nd anniversary ceremony in Seoul, Friday. Yonhap

By Yi Whan-woo

Bank of Korea (BOK) Governor Rhee Chang-yong underscored the role of central banks as inflation fighters, Friday, warning that inflation could worsen if countermeasures are not taken in a timely manner.

He implied that the BOK might raise the benchmark interest rate again in July and August, following five pandemic-era rate hikes that have been carried out since August 2021. In May, the rate was hiked to the highest level since mid-2019, 1.75 percent.

"In the short term, rate hikes could increase the difficulties for vulnerable people, but missing the timing could enable inflation to mount further, and it could aggravate the damage," Rhee said in a speech to mark the 72nd anniversary of the BOK's founding in Seoul.

He said central banks' role in taming inflation is becoming important as global inflationary pressure "is likely to last for a significant period of time."

He assessed Korea is no longer believed to be preemptive in its tightening of its monetary policy compared to other countries, considering that the central banks of major economies are becoming more aggressive in the pace and intensity of their respective hikes.

In a similar tone, BOK Deputy Governor Park Jong-seok said during a press briefing, Thursday, that the central bank does not rule out the possibility of taking a "big step:" a hike of half a percentage point in the benchmark interest rate.

Such a possibility was raised as the interest gap between Korea and the United States is narrowing rapidly due to the U.S. Federal Reserve's faster-than-expected tapering.

A possible reversal of the interest gap is feared to spark an exodus of capital from Seoul if the BOK does not take corresponding measures.

"A quarter-point hike seems appropriate at the moment," Park said, noting that the BOK, however, can make adjustments and come up with a "big hike" by taking into account the financial market if the inflationary risk mounts.

Korea's inflation jumped 5.4 percent in May ― the steepest year-on-year increase in nearly 14 years ― while its quarterly GDP growth was revised slightly down to 0.6 percent in the January-March period.

Park said the country still does not need to worry about the dangers of stagflation ― a toxic mixture of stagnant growth and soaring inflation ― and suggested that the economy will expand at a higher rate than that of the potential growth rate.

Meanwhile, the BOK said the nation's current account balance went into deficit in April for the first time in two years on the reduced trade surplus and annual dividend payments to stock investors.

In its provisional data, the BOK said the country's accounts saw a $0.08 billion deficit in April, marking the first shortfall since April 2020, from the revised $7.06-billion surplus in March.

yistory@koreatimes.co.kr