Central bank chief urges active fiscal policy to spur economic

By Lim Chang-won Posted : July 18, 2019, 13:48 Updated : July 18, 2019, 13:48

Bank of Korea Governor Lee Ju-yeol [Yonhap Photo]


SEOUL -- South Korea's central bank chief called for active fiscal policy to spur growth, saying a recovery in exports and facility investment can be delayed further due to growing external uncertainties caused by a Sino-U.S. trade war and Japan's export restrictions.

"The current slowdown is due in large part to supply shocks," Bank of Korea Governor Lee Ju-yeol said Thursday after the central bank cut its policy rate by a quarter percentage point to 1.50 percent. It marked the first cut since June 2016.

"If we want to respond to supply shocks with monetary policy alone, we need to cut interest rates sharply, but we don't have enough leeway as we did in the past," Lee said. "For this reason, what is needed is active fiscal policy."

The central bank also trimmed down this year's growth outlook to 2.2 percent from an earlier projection of 2.5 percent in April when it slashed its outlook to 2.5 percent from 2.6 percent three months earlier following a contraction in gross domestic product (GDP) in the first quarter of this year. South Korea's economy grew 2.7 percent in 2018.

"We believe that growth has slowed as exports and facility investment have worsened," Lee said. The central bank said that a recovery in exports and facility investment would be delayed from earlier expectations as the trade conflict between the U.S. and China is expected to slow down global economic growth while Asia's fourth-largest economy was dogged by a deepening slump in exports and facility investment.

"Japan's export regulations were partly reflected in macroeconomic assessment, including growth," the governor said. "Considering the size of trade between South Korea and Japan, industry and business links, if export restrictions become reality and expand in some cases, we can't say their impact on exports and our economy will be small."

Strategy and Finance Minister Hong Nam-ki vowed to push for policies "with maximum emphasis on strengthening economic vitality." "We have to deal with this situation with more tension than ever because downside risks widened at home and abroad due to persistent trade disputes, Japan's export regulations, sluggish semiconductor business and weak corporate investment."

Hong warned that a prolonged trade dispute with Japan would affect South Korea's economic growth.
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