"Missed the Golden Time for Interest Rate Cuts and Supplementary Budget"

Bank of Korea and Government's 'Complacent Economic Perception'

As the 'negative growth rate' report card for the first quarter of this year was released, criticism is rising that the government and the Bank of Korea failed to properly respond to the economic slowdown phase.

The real GDP growth rate for the first quarter announced on the 24th (-0.2%) is 0.4 percentage points lower than the Bank of Korea's official forecast of 0.2% in February. The GDP growth rate has remained at 0.1% or less for four consecutive quarters since the second quarter of last year. In response to this economic slowdown, the Bank of Korea lowered the base rate three times by 0.25 percentage points each from last October to this February. This was based on the judgment that lowering the base rate could lead to a decline in market interest rates and an improvement in consumer sentiment. Some experts criticize that the timing of the rate cut was missed. They argue that the rate could have been lowered before July last year due to price stability. The Bank of Korea emphasizes that it had no choice but to freeze the rate due to the rapid increase in household debt through policy loans at that time. However, it is not free from criticism that it was overly optimistic about the economy.

The Bank of Korea raised last year's growth forecast from 2.1% to 2.4% in May last year, then sequentially lowered it to 2.4% in August and 2.2% in November. Last year's growth rate is estimated to have barely reached 2.0%. The Bank of Korea also significantly lowered this year's growth forecast from 1.9% in November last year to 1.5% in February this year. Bank of Korea Governor Changyong Lee predicted further revisions, stating after the monetary policy direction meeting on the 17th that "there is a significant possibility that this year's growth rate will decline considerably."

The government is criticized for missing the 'golden time' for supplementary budget formulation. Until early this year, the government focused on rapid budget execution and drew a line on supplementary budgets. Andong Hyun, a professor of economics at Seoul National University, said, "Despite the noticeable slowdown in growth from the second quarter of last year, the government and the Bank of Korea expected domestic demand to revive when the base rate was lowered," adding, "As a result of misjudging the economy, they failed to properly utilize expansionary fiscal and monetary policies." Hagon Hyung, a researcher at Shinhan Investment Corp., said, "With the disappearance of the economic control tower due to the impeachment situation, the first-quarter budget progress rate fell short of expectations, and the supplementary budget formulation was delayed."

Nam Jeong-min/Jo Dong-wook reporters peux@hankyung.com