Israel-Hamas war feared to push up inflation, affect broader economy: finance minister

Finance Minister Choo Kyung-ho, who doubles as the deputy prime minister for economic affairs, is seen in this Oct. 17 photo. Yonhap

Geopolitical risks stemming from the conflict between Israel and the Palestinian militant group Hamas are feared to cause a flare-up in inflation and ripple effects for the Korean financial market and the real economy, the finance minister said Thursday.

Choo Kyung-ho made the assessment during a parliamentary audit of his ministry, vowing preemptive measures to manage prices and stabilize the people's livelihoods as the economy has shown signs of a turnaround recently.

"The Israel-Hamas clash has not caused major disruptions in energy supplies, and it so far has caused a limited impact on our financial market and the economy," Choo said.

"But we cannot rule out the possibility of suffering difficulties in terms of inflation again, and the potential jump in global oil prices is feared to cause volatility in the financial and foreign exchange markets and weigh on the real economy," he added.

In response, the government will further enhance monitoring of the market and implement preemptive measures based on various scenarios.

Inflation has generally slowed down in recent months, and the government has forecast price pressures will begin to further ease around October, though consumer prices reported the highest on-year increase of 3.7 percent in five months in September.

Global oil prices have fluctuated since the onset of the war in the Middle East earlier this month on concerns about its fallout and the possibility of a wider conflict in the region.

On Thursday, the Bank of Korea (BOK) kept the key interest rate unchanged at 3.5 percent, the sixth straight freeze since January 2023.

Delivering the decision, the central bank said that inflation is forecast to cool down at a slower pace than expected due to high oil prices amid global uncertainties.

The Bank of Korea's headquarters in central Seoul is seen in this undated file photo. Yonhap

The government earlier set this year's target at a 3.3 percent rise, while the figure during the first nine months of 2023 came to 3.7 percent.

In an effort to ease inflation, the government decided to extend the tax cut on fuel consumption, set to expire this month, through the end of this year.

It also plans to boost supplies of agricultural products and give a discount to stabilize the public's livelihoods.

In an effort to boost growth momentum, Choo vowed to extend support to exporters by providing 365 trillion won ($268.9 billion) in trade financing this year and greater tax benefits for corporate investment.

Korea suffered a decline in exports for the 12th consecutive month in September, but exports appeared to have bottomed out in the third quarter on the back of rising global demand for semiconductors.

Choo told lawmakers that exports are forecast to make an upturn starting as early as October, which would help double the country's economic growth during the second half of this year from the first half's 0.9 percent expansion.

The government and the BOK projected 1.4 percent growth for this year. (Yonhap)