Lee Chang-yong, the Governor of the Bank of Korea, speaks at a briefing on the status of inflation target operations held at the Bank of Korea in Jung-gu, Seoul, on the afternoon of the 18th. / Photo provided by the Bank of Korea.
The Bank of Korea has expressed the opinion that the supplementary budget allocation for economic stimulus is unlikely to trigger inflation (price increase).
According to materials submitted to Rep. Cha Gyu-geun of the National Assembly’s Planning and Finance Committee by the Bank of Korea, the bank answered a question about the size of the supplementary budget “that would not affect prices” in this manner.
The Bank of Korea assessed, “Given the recent stable trend of prices and the expectation that this year our economic growth rate will fall below potential levels, the supplementary budget allocated to address economic slowdown has a low likelihood of triggering inflation.”
Additionally, it mentioned, “The government’s ongoing measures to stabilize prices, such as stabilizing agricultural supply and minimizing public fee increases, are factors that limit the inflationary effect of the supplementary budget.”
Regarding the budget size, it stated, “While the supplementary budget could pose upward pressure on prices through increased demand, its specific impact on prices may vary depending on expenditure type, timing, and economic conditions,” adding that “it’s challenging to uniformly present a supplementary budget size that would not hinder price stability.”
Previously, on the 17th of last month, Governor Lee Chang-yong mentioned in an inquiry at the National Assembly’s Finance Committee that “in situations with downside risks, there is a basis for utilizing fiscal policy a bit more.”
On the following day, during a press briefing, he spoke on the need for expanded fiscal policy, including the supplementary budget, stating that “both qualitatively and quantitatively, it should expand more,” and that “the impact on prices will be minor.” He added, “It is a situation where we need to defend the economy through temporary and targeted items, aligning monetary policy accordingly.”