Korea's policy chiefs vow coordination to tame inflation, mention of big step rattles bonds

[Photo by Lee Chung-woo]

South Korea’s new fiscal and monetary chiefs vowed “optimum” policy mix against escalating volatility in financial and foreign exchange markets, rapid buildup in inflationary pressure, and slowing economic activities.

Deputy Prime Minister for Economy and Economy and Finance Minister Choo Kyung-ho and Bank of Korea (BOK) Governor Rhee Chang-yong meeting for the first time on Monday agreed on the “gravity” of current economic conditions and promised to work closely.

Choo started office as the first fiscal policy chief of President Yoon Suk-yeol whose term started last Tuesday. Rhee begun office on May 1 after his predecessor’s term ended in March.

Korea’s fiscal and monetary policy has gone opposite as the new government is seeking a record budgetary increase of nearly 60 trillion won ($46.5 billion), while the BOK next week could deliver the third rate hike as inflation nears 5 percent and rate increases by the United States have fastened.

Rhee who would be administering his first rate-setting meeting on May 26 said if inflation rises further, a big step (a hike of 50 basis points) could be possible upon studies of economic and inflation developments in July and August, when asked by reporters after the meeting.

The three-year government yield broke above 3 percent while 10 to 20-year bond yields jumped more than 40 basis points upon the mention of a “big step.”

The two agreed on the need of “comprehensive” steps to address to strong inflation that adds hardship to public and overall economy, according to the finance ministry statement.

It did not mention if the two discussed the pursuit of a currency swap agreement with the U.S. timed with President Joe Biden’s visit on May 21 as the Korean won has been performing at its weakest since the global financial crisis wake in 2009.

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]