The political turmoil in South Korea is weighing on the economy, Bank of Korea (BOK) Governor Rhee Chang-yong said yesterday, suggesting that authorities might downgrade growth forecasts and take stabilizing actions in response.
There is a high chance South Korea’s GDP would grow 2.1 percent this year rather than 2.2 percent as projected earlier, Rhee said as he assessed the economic impact of the turbulence that began when South Korean President Yoon Suk-yeol briefly imposed martial law earlier this month.
Rhee also raised doubts about whether the economy next year would expand 1.9 percent as forecast last month, calling for more fiscal support and other measures to ensure growth remains unimpeded.
Photo: AFP
The BOK is scheduled to make its next interest-rate decision next month.
Rhee said that the central bank would consider economic data to determine whether it would accelerate its policy.
Most economists expect the bank to take a breather next month after back-to-back cuts from October to last month.
A rate cut by the US Federal Reserve — with a decision expected yesterday — might give the BOK more room for easing if necessary, Rhee said.
Rhee expressed some relief over a decrease in political uncertainty after the parliament on Saturday voted to impeach Yoon for his martial law debacle.
“Volatility in domestic financial and foreign exchange markets has shown signs of stabilization after surging in the wake of the martial law declaration,” Rhee said. “While uncertainty remains, the political schedule ahead is now considered somewhat clearer.”
After turmoil erupted over the martial law decree, the authorities intervened in foreign exchange markets via what they call smoothing operations and would continue to do so should volatility become excessive, Rhee added.
The won has weakened by about 30 won against the US dollar since the martial law decree, he said.
Its level, which stood at about 1,435 per US dollar yesterday, should “normalize” according to economic fundamentals if South Korea’s policymaking process becomes stable again, he said.
Separately, South Korean Minister of Finance Choi Sang-mok said that the government is seeking to front-load its budget spending in the first half of next year to bolster the economy amid the political turmoil.
The government would “mobilize fiscal resources including those for public institutions, private investment, policy financing and so on,” Choi said. “We will also prepare additional measures to support vulnerable populations.”
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