By Cynthia Kim & Jihoon Lee

SEOUL (Reuters) – South Korea’s Central Bank Governor nominee Rhee Chan-yong indicated Tuesday that they will tighten monetary policies, although he said the pace will be less rapid than the U.S. Federal Reserve.

Rhee made a speech for the parliamentary hearing in which he noted the downside risk to growth and called for further reductions to the Bank of Korea’s accommodative policies to reduce inflation, currently at twice the Bank of Korea’s target of 2%.

Rhee spoke in the speech, saying that “the degree of policy relaxation needs to be adjusted in an appropriate pace in order to stabilize prices without hurting the growth momentum and (the BOK), will also seek to alleviate household debt growth in this process.”

Surprise move by the BOK: It raised its benchmark rate last week to 1.50%. This is the highest level since August 2019. The BOK was trying to fight rampant inflation that threatens its economic recovery.

Rhee stated that although inflation will likely rise over the next few years, the growth headwinds of the Ukraine crisis and U.S. Monetary Policy and COVID-19’s resurgence within China need to be carefully monitored and factored into policy decisions.

BOK, which has been increasing its policy rates four times since August, brought it back to the pre-pandemic levels. This reinforces BOK’s role as the most hawkish central bank in the region along with that of New Zealand.

The current expectation is that the policy interest rate will increase to 2.00% in 2019, as all economies have been moving in the opposite direction to curb rising inflation.

“The U.S. has room to raise the policy interest rate at a faster pace as inflation there is double that of ours and as its growth rate is between 3% and 4%, but our growth rate isn’t as strong,” Rhee said at the parliament when asked to comment on the speedy U.S. rate hikes https://www.reuters.com/business/fed-raise-rates-aggressively-coming-months-say-economists-2022-04-11 expected by markets and their impact on local policies.

By late morning, the yield of the liquidest three-year Treasury bond fell 5.8 basis points and was at 2.927%. This is due to the slower pace of tightening that Rhee has been pointing out.

Rhee (a veteran International Monetary Fund officer) is scheduled to begin his four-year term when he has been formally appointed, following the necessary hearing in parliament.