By Lee Hyo-sik
Staff Reporter
The nation's top economic policymaker said Monday that the government will maintain accommodative policies for the time being to facilitate an ongoing economic recovery, making it clear that he is against a rate hike until the nation sees a sustained recovery.
In a meeting with foreign media correspondents at the Korea Press Center in downturn Seoul, Strategy and Finance Minister Yoon Jeung-hyun also said the government will continue to maintain an expansionary fiscal policy stance.
"The government will continue active policy support in macroeconomic policies. In our fiscal policy, we are committed to front-loading state expenditures as scheduled. It is also necessary to keep the current accommodative policy in order to deal with unexpected instabilities on domestic and global markets."
The central bank kept its benchmark seven-day policy rate at 2 percent for the 12th consecutive month in February. The rate has been frozen since March last year, putting the brakes on a monetary easing cycle that trimmed it by 3.25 percent since October 2008 in the aftermath of the global financial crisis.
The BOK is widely expected to keep the rate at the current level at the upcoming monetary policy committee meeting Thursday.
As for the possibility of inflationary pressure and real estate bubbles due to low interest rates and the economic recovery, Yoon said the government is ready to respond effectively with appropriate measures, including strengthened lending regulations and efforts to stabilize utility charges and prices of other daily necessities.
"More importantly, when it comes to an exit strategy, the Korean government will take a cautious and balanced approach between unwinding such policies too early and maintain intervention measures for too long," the minister said.
Touching on current conditions at home and abroad, he said the Korean economy has been showing signs of a slowdown in recent months. "Lately, the economy, which continued its rapid rise in 2009, appears to be taking a breather of sorts, with some indicators signaling a shift away from fast growth. But it seems to still be expanding and going back to normal, and apparent signs to the contrary should not be interpreted as a cause for deep concern."
Yoon said since the third quarter of 2009, the nation's gross domestic product (GDP) has accelerated and bounced back to a level higher than numbers before the crisis, adding that growth had slowed somewhat in the fourth quarter but still maintained the momentum for positive expansion.
"In particular, since the second half of 2009, as the private sector continues to show its potential to contribute more to overall growth, the ingredients for recovery are gradually adding up towards renewed growth impetus. Though the economy is recently facing a slight slowdown in the beginning of 2010, it appears to be largely due to temporary and seasonal factors, such as the cold wave and heavy snow," the minister said.
He said Korea's current account balance posted a deficit in January due to temporary and seasonal factors, but was estimated to return to a surplus in February, projecting the nation will register about $15 billion in its current account and benefit from relatively faster growth in the United States and China in 2010.
"Accordingly, economic output is expected to rise by around 5 percent annually 2010 if the current strength of domestic demand and exports continues to lead the trend," he said.
But Yoon cautioned that Korea should not become complacent with the recent positive outlook, saying risks and uncertainties at the both the domestic and global level would likely remain substantial for some time.
"As in recent cases such as Dubai, and the sovereign vulnerabilities in some EU countries prove, the world economy is not yet on solid ground. Such unexpected events may likely cause a recurrence of instability in the international financial market, thereby hampering sustained global recovery," he said, stressing Korea's future economic performance is very much based on how well it is able to design and implement policies to manage such risks.