BOK nominee pledges steady interest rate increases

Finance

Published: 19 Apr. 2022, 17:05 Updated: 19 Apr. 2022, 18:59

BOK nominee pledges steady interest rate increases

Bank of Korea Governor nominee Rhee Chang-yong speaks at a confirmation hearing at the National Assembly in Yeouido, western Seoul, on Tuesday. [YONHAP]

Rhee Chang-yong was unanimously approved as the next Bank of Korea Governor at a confirmation hearing on Tuesday.

"Rhee is known to have a wide range of policy[-making] and international experiences," said the National Assembly Strategy and Finance Committee in a report, citing his past jobs as Director of the Asia and Pacific Department at the International Monetary Fund and a chief economist at the Asian Development Bank.

It said Rhee will be able to "easily perform the central bank governor duties considering the nominee's will and conviction to stabilize finances and consumer prices through adequate monetary policies."

Rhee is expected to be inaugurated as soon as later this week after the Blue House completes the appointment process, said the Bank of Korea.

Rhee said at his Tuesday confirmation hearing at the National Assembly in Yeouido, western Seoul, that interest rates are going up, but pledged to lift them at a moderate speed.

Rhee said household debt levels are so high they could jeopardize the country’s financial stability and growth.

The household debt “growth rate should be continuously alleviated through interest rate signals,” said Rhee. The central bank “will have to prepare for the chance of insolvency risks centered on vulnerable borrowers.”

Outstanding household debt held by banks was 1,059 trillion won ($861 billion) as of the end of March, down 0.9 percent from a month earlier but up 4.9 percent on year, according to the Bank of Korea.

Inflation is projected to climb “for a considerable amount of time due to rise of raw materials, like crude oil and wheat,” Rhee added. He said inflation may persist for one to two years.

But Rhee said Korea's rate hikes don't have to be as rapid as the U.S. Fed's because the U.S. has higher inflation and a sturdier economy.

Korea’s base interest rate was raised to 1.5 percent last week in the fourth round of increases that began in August 2021. Analysts project two more increases of a quarter percentage point this year.

The Fed raised rates by a quarter of a percentage point in March to a range of between 0.25 percent and 0.5 percent. It has indicated that aggressive rate increases are coming, with Fed Chairman Jerome Powell saying last month that short-term interest rates will be ratcheted up faster than expected, even if that means disrupting growth and hiring.

Rhee noted a higher base interest rate in the United States than in Korea could result in a weakening of the won, which could fuel inflation here.

Korea’s consumer prices were 4.1 percent higher in March than a year earlier, the highest rate in a decade. In the same month, consumer prices in the United States rose 8.5 percent.

Rhee also highlighted the need for regulation that could prevent stagnation caused by structural factors in Korea, like an aging society, poverty among the elderly and income inequalities.

The central bank “will jointly deliberate with the government on ways to appropriately manage private debt that could grow rapidly while urgently preparing for relevant countermeasures” to deal with structural changes in the economy.

BY JIN MIN-JI [jin.minji@joongang.co.kr]