Blanket cash assistance not desirable: BOK head

Bank of Korea Governor Rhee Chang-yong speaks during a press briefing, Wednesday. Yonhap

By Lee Kyung-min

• Published Jun 18, 2025 4:42 PM KST

Low-income earners suffer more from high inflation

Bank of Korea (BOK) Governor Rhee Chang-yong said Wednesday that blanket cash payouts as part of a short-term growth stimulus is not desirable, compared to targeted assistance for low-income earners and the self-employed, stressing effective government resource allocation.

Lee also said won-based stablecoins are needed, but only in the context of stable foreign exchange (FX) management, given the interchangeability of won-based and U.S. dollar-based coins.

“The government should prioritize targeted assistance for the self-employed and small businesses,” he said during a press briefing. “I cannot make an assessment yet because I am not privy to the government’s extra budget details. But the measure will bolster growth, while its impact on price hikes are limited.”

As for the much-debated stablecoins, granting payment and settlement functions to non-banks will lead to a fundamental change in the financial landscape, Rhee said. “I am not against the issuance of won-based stablecoins. We need to be mindful of a bigger picture on how non-banks and banks will reorient their business models.”

Meanwhile, in the price stability report released earlier in the day, the central bank said increasing housing prices in the Seoul metropolitan area has led to higher perceived inflation, despite relatively favorable income conditions.

This in turn led to constrained household spending power, a reason why the BOK said stable housing costs are critical to bolstering sluggish consumption.

Rising housing prices since 2013 show a widening gap in rent prices between Seoul metropolitan regions and non-capital regions, the report showed.

For example, Seoul residents spent 2.29 million won ($1,670) on housing, while residents in North Gyeongsang and South Jeolla provinces spent 510,000 won and 490,000 won, respectively.

However, the central bank cautioned against investing in construction outside the capital region to boost short-term growth. Years of chronic oversupply have led to a growing inventory of unsold homes in these areas, an issue of ongoing concern for builders.

As for the impact of U.S. tariff uncertainties on consumer prices, Korea may see lower inflation brought on by demand shock, meaning softening demand.

However, just as likely is the prospect of higher inflation due to a weakening won or supply chain disruptions. Which condition comes about will depend on what happens during trade talks.

The central bank also said Korea’s clothing, food and housing price levels are high compared to major Organization for Economic Cooperation and Development (OECD) peers.

According to 2023 OECD data, prices of fruits, vegetables and meat in Korea were at least 1.5 times higher than the OECD average. This was because of the country’s slow productivity, insulated domestic market and high logistics and storage costs.

The high prices contributed to weaker post-pandemic real household purchasing power.

Nominal wage grew only 2.2 percent from 2021 through the first quarter of this year, which is significantly eroded from the 3.4-percent growth between 2012 and 2019.

A BOK survey conducted in May showed that 62 percent of respondents who did not increase spending in the first four months of this year said it was because of high inflation.

Low-income households reported greater financial strain, experiencing market conditions called “cheapflation,” where cheaper goods rise in price faster than the more expensive varieties.

Lower-income households felt perceived inflation more acutely than their well-to-do peers, since they spent a larger portion of their incomes on daily essentials like food.

The central bank said high perceived inflation, associated with rising living costs, can make inflation expectations harder to anchor. This is a concern for the BOK, which has a mandate to maintain price stability, as widespread belief that inflation will keep increasing could undermine that mandate in the medium-to-long term.

The BOK said effective ways to manage inflation expectations included corporate competition and import source diversification.