Finance chief says gov’t puts greater priority on domestic demand ahead of BOK’s rate decision

Finance Minister Choi Sang-mok said Wednesday the government puts greater policy priority on how to prop up domestic demand over household debts, though he fully respects the Bank of Korea's (BOK) rate-freezing decision amid soaring debts and home prices. Last month, the BOK decided to keep the key rate at 3.5 percent, unchanged since February 2023, despite moderating inflation, and Gov. Rhee Chang-yong said it needs to consider rising home prices and surging household debts as crucial factors for a possible rate cut despite sluggish domestic demand. The office of President Yoon Suk Yeol expressed disappointment over the decision, citing concerns over its impact on private consumption and investment. "I fully respect the BOK's decision," Choi said during a debate hosted by the Kwanhun Club, an association of senior journalists. "As the deputy prime minister for economic affairs, I think we need to put greater priority on how to recover weak domestic demand (than on household debt issues) in a shorter ter m," he said. He added the government has managed household debts in a stable manner, and the debt-to-GDP ratio has fallen from the 2022 level. "Now that the Federal Reserve made a big cut, there are not many external factors left for South Korea's possible rate cut decision ... The BOK will make a wide decision," Choi said. The BOK markedly raised interest rates from 0.5 percent in mid-2021 to 3.5 percent in January 2023 and has since maintained the level, which is the highest in about 16 years. Last week, the Fed decided to lower interest rates by half a percentage point to between 4.75 and 5 percent. The BOK is scheduled to hold a rate-setting meeting in October. Finance Minister Choi Sang-mok (C) speaks during a debate session hosted by the Kwanhun Club, an association of senior journalists, in Seoul on Sept. 25, 2024. (Yonhap) Finance Minister Choi Sang-mok (C) speaks during a debate session hosted by the Kwanhun Club, an association of senior journalists, in Seoul on Sept. 25, 2024. (Yonhap) Aske d about the No. 1 issue that Yoon cares about the most, Choi pointed to weak domestic demand, noting that Yoon's policy priority is also on how to best support private companies so as to prop up the economic growth. A series of tax cut schemes aim to give incentives for investment and employment, and the government's push to reduce the corporate tax and the inheritance tax is to prevent such old systems from affecting corporate competitiveness, and to spur economic activities by companies and the people, Choi said. Speaking of the revenue shortfall, Choi said he felt responsibility but added that such a hardship is shared by many nations due to changes in corporate activities and the overall asset market structure after the COVID-19 pandemic. "South Korea's overall tax rates are not low compared with welfare spending. The government will try to secure more sources of taxation by propping up the economy," Choi said. Source: Yonhap News Agency