Bank of Korea, finance ministry to narrow policy differences

Deputy Prime Minister and Finance Minister Hong Nam-ki, right, and Bank of Korea Governor Lee Ju-yeol shake hands at a breakfast meeting at the Seoul Press Center, Seoul, Friday. Yonhap

By Lee Kyung-min

The current expansionary fiscal stance will be maintained, coupled with a slower-than-expected easing of monetary policy, the country's top fiscal and monetary authorities said Friday.

The sudden announcement of policy coordination by the Ministry of Finance and Bank of Korea coincides with heightened uncertainties involving the spike in COVID-19 infections this week, mostly in Seoul and Gyeonggi Province, and the subsequent continuation of strict social distancing rules.

Also being factored into the equation is the turn of events which significantly undermines efforts to weather the pandemic despite the economy showing clear signs of recovery, notably in exports and private consumption.

“Cohesion between fiscal and monetary policies is more important than ever amid lingering financial risks, including financial imbalance, uneven recovery and income polarization despite the rapid economic recovery,” Deputy Prime Minister and Finance Minister Hong Nam-ki and Bank of Korea Governor Lee Ju-yeol said at a breakfast meeting at the Seoul Press Center.

It was the first meeting between the finance minister and central bank governor in since December 2018, shortly after Hong was inaugurated as minister.

They agreed that the current expansionary stance should continue to be reflected in fiscal policy for the time being, while any easing of monetary policy needs to be adjusted according to economic conditions.

In addition to a resurgence in COVID-19 infections in Korea, household debt is surging both in pace and size compared to the country's nominal gross domestic product (GDP).

According to a report by the Korea Institute of Finance, the household debt-to-nominal GDP ratio rose to 90.3 percent as of the first quarter of this year, up from 83.4 percent at the end of 2019. The ratio stood at 62.7 percent in 2008.

The ratio among advanced countries measured by the Bank for International Settlements (BIS) averaged 81 percent last year, up from 76.1 percent in 2008.

The ratio of household debt to disposable income, an indicator of households' ability to repay debt, stood at 181.1 percent as of March, up 18 percentage points from a year earlier.