When in doubt, tighten monetary policy and the economy will adjust over time, the head of the OECD advised South Korea's central bank, which has been struggling to balance rising inflation and slowing growth.
"If you allow inflation to creep up because you did not tighten in time, then it is very difficult to dislodge it," Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development, told reporters in Seoul on Thursday.
"It's like salt. It goes in there and establishes itself and then rots everything," said Gurria when asked whether the Bank of Korea should raise interest rates in response to surging inflation, which hit a 7-year high of 4.9 percent in May. "When in doubt, maybe you should tighten because you can always adjust later."
The OECD expects South Korea's economic growth to rebound to 5.0 percent next year as global financial turbulence subsides and if raw materials prices stabilise, after slowing to 4.3 percent this year from 5.0 percent in 2007. Last week, the Bank of Korea held the benchmark interest rate steady at 5.0 percent for the 10th consecutive month in the face of conflicting risks from rising prices and a slowdown in Asia's fourth-largest economy. The central bank next reviews interest rates on July 10.
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