As calls for rate cut grow, finance minister prioritizes recovery in demand

Amid growing expectations of a rate cut by the Bank of Korea, Finance Minister Choi Sang-mok told reporters that the government's top priority is a recovery in domestic demand.

Minister of Economy and Finance Choi Sang-mok speaks during a panel discussion hosted by the Kwanhun Club in central Seoul on Wednesday. [MINISTRY OF ECONOMY AND FINANCE]

Amid growing expectations for an interest rate cut in Korea, Minister of Economy and Finance Choi Sang-mok said on Wednesday that driving up weak domestic demand remains the top priority for the government.

“With the U.S. Federal Reserve implementing a large cut, the governor of the Bank of Korea [BOK] previously mentioned that external factors that had been limiting our [rate cut] decision were significantly reduced and that now we need to look into the domestic situation,” noted Choi during a panel discussion with journalists hosted by the Kwanhun Club, a journalist association, in central Seoul on Wednesday.

“As such, I am expecting a wise decision from the BOK.”

The comment came in as the central bank faces growing calls for a rate cut after a 0.5 percentage point reduction in the United States. While slumping domestic demand and a slowdown in inflation provide grounds for lowering interest rates, the BOK has been wary of the recent surge in mortgage loans and housing transactions.

Addressing a question on the government's priority between driving up domestic demand or stabilizing the housing market, Choi cautiously responded, “As finance minister, I would say that the domestic demand recovery should come first in the short term."

The minister noted that goods consumption and construction investments, which have been sluggish despite a recovery in exports, were expected to rebound through the remainder of the year, while promising that the government would strive to accelerate the process with a new plan set to be announced soon.

When asked whether the government would provide financial support in the form of direct subsidies for investments in the semiconductor industry, Choi said, “The government will provide the utmost support through close communication with companies, as key sectors including semiconductors are essential, especially with the global tech race intensifying.”

However, the minister also noted, “Building a chip production plant in the greater Seoul area is in and of itself a significant benefit, and providing the necessary infrastructure or expediting the process can also be a form of subsidizing investments.”

In his opening remarks ahead of the panel discussion, Choi cited the upcoming U.S. presidential election and geopolitical tensions in the Middle East region as some of the persisting external risks, while also addressing structural issues such as slowing growth potential and social mobility.

“The government will prioritize improving everyday livelihoods above all, while managing both internal and external risks and expediting structural reforms for future generations,” he said.

The minister also mentioned the Corporate Value-up program, reaffirming the government’s commitment to provide tax incentives for companies taking part in the initiative as well as abolishing the capital gains tax.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]