More active use of monetary policy needed to fight inflation: BOK report

SEOUL– The Bank of Korea (BOK) needs to “actively” utilize its monetary policy as a tool to tamp down inflation amid worries that prices are under growing upward pressure from supply chain disruptions, soaring commodity costs and rebounding consumption, a central bank report said Sunday.

The report came days after the central bank hiked its policy rate to 1.5 percent to rein in inflation. The rate increase marked the fourth of its kind since last August and the highest in about three years.

“With inflation pressure spreading in all directions and inflation expectation also on the rise, operating monetary policy in a way to ease anxiety among economic players seems to be desirable in light of macroeconomic stabilization in the mid-term period,” the report said.

The report drew attention to major countries’ different policy choices made to respond to surging prices in the wake of the oil shock in the 1970s.

The report said that Germany used a policy mix of monetary tightening and expansionary fiscal action on the belief that protracted inflation was a “monetary phenomenon,” while the United States and Britain adopted expansionary fiscal and monetary stance as they believed that inflation was caused mainly by high costs.

“As a result, the U.S. and Britain continued to suffer macroeconomic challenges such as high levels of inflation and unemployment into early 1980s after the oil shock ended but Germany saw relatively favorable economic conditions as inflation and employment were stabilized,” the report said.

The report said that the global supply bottlenecks are persisting longer than initially expected, international raw material prices are rising sharply amid the Ukraine war, and China’s pandemic-caused lockdown has spawned concerns that supply disruptions could be here to stay for a longer period of time.

“Demand-side pressure on inflation is also expected to mount as domestic consumption is showing signs of recovery on easing antivirus curbs,” the report added.

South Korea’s consumer prices jumped 4.1 percent in March from a year earlier, the fastest gain in more than 10 years. The prices quickened from a 3.7 percent on-year rise in February.

The BOK has predicted that prices could grow faster than its February prediction of a 3.1 percent rise for this year due to more upward pressure from geopolitical tensions and other issues.

Source: Yonhap News Agency

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