Shin Hyun-sung, Governor of the Bank of Korea, stated on October 12 that the government budget for next year is expected to contribute an additional 0.5 percentage points to the country's gross domestic product (GDP).
During a National Assembly Finance Committee hearing held at the Bank of Korea in Seoul, Shin noted, "The projected increase in the inflation rate due to this is estimated at 0.06 percentage points."
He explained that since there are expenditure items classified as transfer payments, the fiscal multiplier for these transfer payments is relatively low. He added, "There is room for further evaluation on whether the 0.06 percentage points will exert additional upward pressure on inflation," and remarked that this increase could be considered relatively small.
On the same day, lawmaker Lee Jong-wook from the ruling People Power Party pointed out that the government's expansionary fiscal policy could conflict with the Bank of Korea's tightening monetary policy. In response, Shin said, "We are actually verifying whether there is a discrepancy through modeling."
Shin acknowledged concerns that the government's fiscal expansion could place short-term pressure on prices and money supply, stating, "It does indeed pose a burden." However, he emphasized that fiscal spending has a multiplier effect that increases total demand in the short term, and if it raises potential growth rates in the medium to long term, it may not necessarily lead to a conflict.
* This article has been translated by AI.
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