Yi Chang-yong: "The supplementary budget will not have a significant impact on inflation"

"National subsidies should be selective

Can help struggling self-employed individuals

Inflation has stabilized, but perceived inflation remains high"

Yi Chang-yong, Governor of the Bank of Korea, stated on the 18th regarding the government's and ruling party's push for a second supplementary budget bill that "the impact on inflation will not be significant."

At the price stability status press briefing held that afternoon at the Bank of Korea's annex on Namdaemun-ro, Seoul, when asked about the supplementary budget, Governor Yi replied, "I have not seen the details of the budget proposal put forth by the ruling party, so it is difficult to (accurately) assess," adding this view.

Regarding nationwide subsidies to boost consumption, he said, "I am not aware of the specifics," but reiterated his previous position that "selective support is more efficient in assisting struggling self-employed and small business owners than universal support from a fiscal efficiency perspective."

When asked about market speculation that a larger supplementary budget could delay the pace of base rate cuts, he remarked, "The timing and extent of any cuts will be determined by observing factors such as household debt, the housing market, and foreign exchange markets," declining further comment.

The BOK analyzed that if a supplementary budget of around ₩20 trillion is implemented, next year's inflation rate could rise by an additional 0.1 percentage point. Considering the procedures and time required for budget formulation and spending, the impact on this year's inflation is expected to be limited. The economic effects of the supplementary budget will be released next month.

At the briefing, the BOK evaluated the inflation trend as stable. Recently, inflation has been moving around 2%. The BOK stated, "Although the rise in processed food prices and some service charges will act as upward factors for inflation, subdued demand pressures will offset this, resulting in both consumer and core inflation (excluding energy and food) stabilizing in the high 1% range in the second half of the year."

The recent escalation of geopolitical tensions in the Middle East raising concerns about higher international oil prices was cited as a threat factor. Governor Yi said, "We have analyzed situations where oil prices rise to $75, but uncertainties discussed in the market are greater than this," and added, "It would be helpful for oil prices to remain at low levels, so I hope there will be no additional negative developments."

He also mentioned the overall higher price level. Governor Yi pointed out, "The term 'price stability' means inflation has stabilized, but many people may not feel this because the price level itself has risen." In a report, he noted, "Since the pandemic, the elevated price level as a result of an inflationary period has continued to burden households," and diagnosed, "Recently, the increase in the prices of processed food and other essentials has also led to higher perceived inflation among vulnerable groups."

Reporter Kang Jin-kyu josep@hankyung.com