Supplementary Budget Required to Offset Economic Slowdown
Bank of Korea Governor Lee Ju-yeol said on March 25 that the central bank would maintain monetary easing for the time being for stable economic growth.
“An active role of finance is necessary in a macroeconomic point of view alone, and a supplementary budget of 10 trillion won, which is equivalent to 0.5 percent of the GDP, would contribute to a higher growth rate,” he said.
This means monetary easing based on a supplementary budget is required to offset the ongoing economic slowdown attributable to a decline in exports. Earlier, the IMF advised that a supplementary budget equivalent to 0.5 percent of the GDP is required for South Korea to achieve this year’s economic growth goal of 2.6 percent to 2.7 percent.
He went on say it is true that things are worse than earlier this year, implying the central bank would somewhat lower its growth estimate next month. Still, he mentioned the current benchmark rate is lower than the neutral rate and, as such, the benchmark rate does not need to be additionally lowered.
Still, an increasing number of market insiders are predicting that the central bank would lower the benchmark rate in the second half of this year. “With the United States planning to maintain the current benchmark rate for a while, the central bank of South Korea is under less pressure to raise its rate,” said the Hyundai Research Institute, adding, “Now is the time to consider a lower benchmark rate with both exports and domestic consumption showing signs of deterioration.”