South Korea’s new central bank governor Rhee Chang-yong said the Ukraine crisis, U.S. monetary tightening, and Covid-19 resurgence in China as near-term factors weighing on economic growth amid persistently high inflation.
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South Korea’s new central bank governor Rhee Chang-yong said on Thursday that economic growth is expected to weaken further from the Bank of Korea’s earlier projection, emphasizing that monetary policy will aim to balance growth and inflation.
“Inflationary pressure is growing and at the same time, growth is expected to be weaker than previously seen,” Rhee said in a speech to central bank employees as he started his four-year term.
“The trade-off between growth and inflation is adding constraints to monetary policy, and it is time for a fine balance between the two,” Rhee said.
His remarks come after the Bank of Korea said last week that growth this year is expected to be slower than the 3% expansion seen in February, suggesting the central bank may focus more on shoring up the economy later this year.
The BOK last week raised its benchmark rate to 1.50%, the highest since August 2019 in a surprise move as it ramped up the fight against rampant inflation, which is threatening the country’s recovery.
Analysts currently expect the policy rate to rise to 2.00% by the end of this year.
The BOK next reviews its growth forecasts in May.
Rhee cited the Ukraine crisis, U.S. monetary tightening, and Covid-19 resurgence in China as near-term factors weighing on economic growth amid persistently high inflation.
Rhee warned that in the long run the economy may experience stagnation with an ageing population and decreased productivity, adding that it would be extremely difficult to overcome once such a situation becomes entrenched.
President Moon Jae-in on Wednesday formally appointed Rhee, a veteran International Monetary Fund official, as the BOK’s new governor, following parliament’s approval the day before.