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(LEAD) S. Korea's central bank chief doesn't rule out 50-basis-point rate hike

Economy 10:00 May 16, 2022

(ATTN: RECASTS throughout with more details throughout; CHANGES headline; ADDS photo)

SEOUL, May 16 (Yonhap) -- South Korea's central bank chief on Monday did not rule out the possibility of a 50-basis-point rate hike amid growing concerns about stagflation, a mix of slowing growth and high inflation.

In April, the Bank of Korea raised the policy rate by a quarter-percentage point to 1.5 percent, the fourth rate hike since August last year, in a bid to tame inflation and curb household debt.

Analysts forecast the BOK to further hike the borrowing costs at the May 26 policy meeting.

"Whether we could consider (a 0.5-percentage point increase) will rest on how much inflation rises going forward," BOK Gov. Rhee Chang-yong told reporters after his meeting with Finance Minister Choo Kyung-ho.

Rhee said the BOK will closely monitor data on growth and inflation.

Finance Minister Choo Kyung-ho (L) and Bank of Korea Gov. Rhee Chang-yong shake hands ahead of their policy meeting in Seoul on May 16, 2022. (Pool photo) (Yonhap)

South Korea's consumer prices grew at the fastest pace in more than 13 years in April. Consumer prices spiked 4.8 percent on-year in April, a pickup from a 4.1 percent gain in March.

High inflation is feared to erode people's purchasing power, hampering economic growth. The South Korean economy is expected to slow to the 2 percent range this year due to heightened economic uncertainty, after the 4 percent expansion last year.

Choo and Rhee called for close policy coordination as they held their first official meeting to discuss ways to stabilize inflation, financial market volatility and policy coordination.

The two "stressed that strengthening policy coordination based on communication and raising policy trust will lay the groundwork for stability in macroeconomic conditions and the financial market," the finance ministry and the BOK said in a joint statement after the meeting.

The meeting came amid concerns that the government's proposal of a record extra budget is not in sync with the BOK's monetary tightening drive.

Last week, the finance ministry proposed an extra budget of 59.4 trillion won (US$46.3 billion) in the latest move to compensate pandemic-hit merchants for their losses caused by stricter virus curbs.

Critics said the move could further stoke inflation as consumer prices have been under upward pressure amid soaring energy prices caused by the prolonged Ukraine crisis and the economic recovery.

sooyeon@yna.co.kr
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