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BOK chief nominee vows to adjust monetary policy to tame inflation, engineer 'soft landing' in household debt

Economy 10:00 April 19, 2022

SEOUL, April 19 (Yonhap) -- The Bank of Korea will adjust the accommodative extent of its monetary policy "at an appropriate speed" to rein in inflation to ensure the momentum for economic growth will not be undercut, the nominee for the central bank chief said Tuesday.

During a parliamentary confirmation hearing widely seen as a formality, Rhee Chang-yong added that the central bank under his leadership will work hard to engineer a "soft landing" in household debt through its action on monetary policy.

Rhee was appointed to lead the BOK last month after Lee Ju-yeol left office after eight years at the helm. Rhee had served as a director of the Asia and Pacific department at the Washington-based International Monetary Fund.

"I will try to adjust the accommodative extent of monetary policy at an appropriate pace with caution in mind not to hurt growth momentum and also engineer financial stability, including a soft landing in household debt, through such action," he said.

Rhee did not mention rate hikes directly but "adjusting" signifies increasing borrowing costs that had been at record lows for about two years until mid-2021 to stimulate the economy that's been hit hard by the pandemic.

He expressed worries over heightened external uncertainty, citing the protracted war in Ukraine, the U.S. central bank's aggressive monetary tightening and the possibility of a growth slowdown in China due to the resurgence of omicron infections.

"As a result, upward risks on inflation are expanding, so are downside risks on the economy," he said.

Rhee Chang-yong, the nominee for the governor of the Bank of Korea, answers reporters' questions while reporting to work at his office in Seoul on April 1, 2022, to prepare for his parliamentary confirmation hearing. (Pool photo) (Yonhap)

South Korea's economy has been on a recovery track from the pandemic driven mostly by robust exports. But inflation pressure has been on the rise, raising worries that it could undercut the growth momentum.

South Korea's consumer prices jumped 4.1 percent in March from a year earlier, the fastest gain in more than 10 years. Rhee expected that consumer prices will keep their upward move "for a significant period of time."

The BOK raised its policy rate by a quarter percentage point last week to 1.5 percent, the fourth rate increase since last August as it is grappling with rising inflation pressure.

The steep rate hikes, however, have spawned concerns that they could hurt economic growth and increase the debt burden on many households and companies that have taken out loans to tide over the pandemic and buy homes.

The nominee for the central bank chief said household debt has increased at a slower pace in recent months, but the amount still remains high, worrying that it could pose "potential risks" to the economy.

Outstanding bank loans to households came to 1,060.1 trillion won (US$865.4 billion) as of the end of February, down 100 billion won from the previous month, according to data from the BOK.

The decline is partly caused by the government's continued restrictions on lending, rising borrowing costs due to higher interest rates and less demand for home purchases, the BOK earlier explained.

"We should continue to slow the growth (of household debt) through signals on interest rates," he said.

The nominee also promised to closely cooperate and coordinate with the government "if necessary" to hammer out the central bank's polices in a "comprehensive" and "consistent" manner.


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