Yoon "More Serious Situations Could Occur"... Economic Team "Inflation Most Urgent" (Summary)

Yoon Attends 'Economic Policy Direction Announcement Meeting'
"Need to Change Economic Structure... Will Remove Shadow Regulations"
Heads of New Government's Fiscal, Monetary, and Financial Authorities Gather
"Inflation Is Most Urgent"... Big Step Possible Next Month

President Yoon Suk-yeol is speaking at the New Government Economic Policy Direction Announcement Meeting held at the Corporate Growth Center in Pangyo 2nd Techno Valley, Seongnam-si, Gyeonggi-do, on the morning of the 16th. [Image source=Yonhap News]

The heads of the fiscal, monetary, and financial authorities have reinforced expectations that next month will see a historic 'big step' (a 0.5 percentage point increase in the base interest rate). This is because the U.S. Federal Reserve (Fed) raised its base interest rate by 0.75 percentage points, making a significant hike in South Korea's base interest rate inevitable. President Yoon Suk-yeol, concerned about the shock from the rate hike, urged the government economic team to "respond with the resolve that even more serious situations could arise."

On the morning of the 16th, President Yoon presided over the 'New Government Economic Policy Direction Announcement Meeting' held at the Second Technovalley in Pangyo, Gyeonggi Province, where he said, "The domestic and international conditions our economy is currently facing are very severe," emphasizing this point. President Yoon assessed the current economic situation by stating, "Amid the looming fear of stagflation, the economy and markets are shaken by a complex crisis."

President Yoon once again brought out the card of 'deregulation,' saying, "In times of crisis, we must fundamentally transform the structure of our economy led by the private sector and the market." He promised, "The government will remove outdated systems and shadow regulations based on customary practices that hinder private innovation and new businesses."

He also stressed, "We must overcome the immediate livelihood crisis and achieve remarkable economic growth to solve the chronic problems of low growth and polarization." To this end, President Yoon believes that the government’s capabilities must be concentrated so that the private sector can create more jobs and the people can find new opportunities.

He also pointed out the contraction of private investment and the decline in productivity. Considering this, President Yoon said, "The government will do everything it can to support R&D and talent development in national strategic industries such as semiconductors, which are strategic assets in the era of economic security."

He urged the new government economic team to urgently resolve the inflation, interest rate, and housing issues that the people are facing. Instead, the government plans to step in to reduce the private sector’s production cost burden and stabilize living prices as much as possible. President Yoon emphasized, "Let us establish an economic crisis response system with extraordinary determination to restore the economy’s dynamism."

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is giving a briefing after concluding the emergency macroeconomic financial meeting held at the Bankers' Hall in Jung-gu, Seoul, on the morning of the 16th. From left: Lee Bok-hyun, Governor of the Financial Supervisory Service; Choi Sang-mok, Senior Secretary for Economic Affairs; Deputy Prime Minister Choo; Lee Chang-yong, Governor of the Bank of Korea; Kim So-young, Vice Chairman of the Financial Services Commission.
[Photo by Yonhap News]

The economic team also closely monitored the impact of the U.S. interest rate hike. On the same day, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, Bank of Korea Governor Lee Chang-yong, and other heads of fiscal, monetary, and financial authorities gathered in one place and shared the recognition that "inflation is the most urgent issue."

Deputy Prime Minister Choo, Governor Lee, Financial Services Commission Vice Chairman Kim So-young, Financial Supervisory Service Governor Lee Bok-hyun, and Presidential Office Economic Secretary Choi Sang-mok held an emergency macroeconomic and financial meeting at the Bankers’ Hall in Jung-gu, Seoul, in the morning to discuss countermeasures against the Fed’s decision to raise the base interest rate by 0.75 percentage points at the Federal Open Market Committee (FOMC) meeting overnight?the largest hike in 28 years.

After the meeting, Deputy Prime Minister Choo said, "We share the common understanding that price stability is the most urgent issue and have agreed to respond with full efforts." He added, "Along with monetary policy operations that place greater emphasis on inflation, we will strengthen multifaceted efforts such as reducing supply-side cost burdens and preventing the spread of inflation expectations." Given the sharp tightening in the U.S. and the Ukraine crisis causing soaring prices and increased volatility in financial and foreign exchange markets, the government intends to prepare all possible countermeasures, including raising the base interest rate.

Accordingly, there is growing analysis that the Bank of Korea is likely to raise the base interest rate by 0.5% at the Monetary Policy Committee meeting next month. Governor Lee said, "There are still 3 to 4 weeks until the next Monetary Policy Committee meeting, and many changes could occur during that time," adding, "We will decide after observing market reactions until then."

Although he avoided a clear statement, Governor Lee also acknowledged, "It is true that the pace of (U.S.) rate hikes is faster than ours," suggesting he is expected to take a more proactive stance on raising the base interest rate. Regarding holding an extraordinary Monetary Policy Committee meeting to raise the base rate, he said, "We have not considered it yet" and "We will consider market conditions."