BOK chief nominee to give clear rate signal to tame inflation

[Photo by Yonhap]

Rhee Chang-yong designated as the new Bank of Korea Governor Tuesday, vowed to give clear signal of rates going higher to subdue expectations for stronger inflation even though the move can be “unpopular.”

Rhee, a former International Monetary Fund director for Asia Pacific sitting for his first day of legislative confirmation hearing, feared inflation at 4 percent could shot up higher if signals are not issued earlier to tame inflation expectations.

He projected strong inflation could last one to two years when demand from normalization from pandemic adds to high prices from supply-end issues.

The tightening pace would be adjusted when economic growth significantly slows, he added.

Rhee last month was named to succeed Lee Ju-yeol whose term ended at the end of March. As an IMF director he has repeatedly called for deleveraging efforts in the Korean private sector that has come to overwhelm the gross domestic product.

But there is a limit for rates to contain household debt as it is related to real estate and called for “government-wide” taskforce for a comprehensive solution, he said.

Rhee comes to the helm at monetary policy amid multiple challenges.

The prolonged war between Russia and Ukraine, along with the U.S. Federal Reserve’s faster tightening and Chinese shutdown from Omicron spread raise downside risks for the economy and upside for prices, he found.

Rhee also shared mid- to long-term challenges the economy faces and needs to solve in post-pandemic era.

The nominee pointed out that youth unemployment, elderly poverty, income inequality and polarization, and aging trend damages growth potential and deepens social conflict which raises concerns over long-term low growth.

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