[주간리뷰] The base interest rate is 0.25 percentage points ↑… “Inflation is increasing” warning sound

Annual consumer price increase expected to be around 4%
The heyday of the Ministry of Finance is back
Government decides to join ‘CPTPP’

The Bank of Korea tightened the reins of monetary tightening by raising the key interest rate again for the first time in three months since January, even with the governor vacant. As a result, the base interest rate was returned to 1.50% per annum, the pre-COVID level in July 2019.

The Monetary Policy Committee of the Bank of Korea held a monetary policy direction decision meeting on the 14th and announced that it would raise the base rate by 0.25 percentage points from 1.25% to 1.50% per annum. Earlier, on March 17, 2020, the MPC lowered the base interest rate by 0.50 percentage points at a time when the economic recession caused by the COVID-19 crisis was expected, and on May 28 of the same year, it lowered the interest rate by 0.75 percentage points for the first time in two months. there is a bar

Annual consumer price increase expected to be around 4%

After nine freezes, on August 26 last year, it raised 0.25 percentage points for the first time in 15 months, signaling ‘monetary policy normalization’. Since then, the base rate has risen by 0.25 percentage points four times for a total of 1.00 percentage points between November of the same year, January of this year, and this day.

The problem is that prices will rise further in the future. If there is no major reversal in the current situation, concerns are growing that the annual consumer price inflation rate will soar to the 4% range and the economic growth forecast may drop to the 2% range.

The fact that the US Fed may take a ‘big step’ of raising interest rates by 0.5 percentage points at the earliest in May to catch inflation is also being mentioned as a factor in raising the key interest rate.

Joo Sang-young, who served as the chairman of the Monetary Policy Committee, said, “The growth rate of the gross domestic product (GDP) this year will slightly fall short of the February estimate (3%), and the consumer price will continue to rise at the high level of 4% for the time being.”

The government’s “inflation rate is increasing” warning sound

Regarding the recent economic situation, the government raised the awareness of crisis by stating that domestic and foreign risks are limiting the recovery of domestic demand as well as increasing domestic inflation.

The Ministry of Strategy and Finance said in the April issue of “Recent Economic Trends (Green Book)” on the 15th, “The Korean economy continues to show improvement in exports and employment, but the spread of a mutated virus and prolonged Ukraine crisis have raised concerns about restrictions on the recovery of domestic demand and increased inflation.” said.

Through the Green Book for five consecutive months since December of last year, the possibility of a negative impact on domestic demand due to COVID-19 was expressed. In particular, this is the first mention of prices since February 2011 and January 2012, when the domestic consumer price inflation rate exceeded 4%. It is evaluated that the sense of crisis caused by the last month’s inflation re-breaking the 4% level for the first time in 10 years is reflected.

Externally, attention was paid to the additional impact that China’s lockdown measures due to the spread of Corona 19 will have on the domestic economy. Lee Seung-han, head of the economic analysis division at the Ministry of Strategy and Finance, said, “Externally, supply chain disruptions and inflationary pressures are aggravating the impact of Russia’s invasion of Ukraine. he explained.

The heyday of the Ministry of Finance is back

The ‘Era of the Ministry of Finance and Economy’ was ushered in as officials from the Ministry of Strategy and Finance were heavily promoted to key positions in the Blue House and key cabinets of the Yun Seok-Yeol administration. As all former Prime Ministers and Deputy Prime Ministers, as well as the positions of the Chief of Staff of the President were selected from the Ministry of Strategy and Finance, the economic dream team was born, and the government is swayed by the observation that the influence of the Ministry of Finance, which already has powerful power, will be stronger in the next government. there is. Some say that it is a reenactment of season 2 of the ‘Super Treasury Department’ during the YS (Kim Young-sam government), when the Economic Planning Board and the Ministry of Finance were integrated to become a dinosaur ministry.

According to government officials on the 15th, President-elect Yoon Seok-yeol appointed Prime Minister Han Deok-soo, Deputy Prime Minister and Minister of Economy and Finance Chu Kyeong-ho, and Chief of Staff Kim Dae-ki, and then appointed Choi Sang-mok, former First Vice Minister of the Ministry of Strategy and Finance, who serves as the secretary of the Economics Division of the Transition Committee, as the Financial Services Commission Chairman. It is said that there is a high probability that he will be appointed.

What they all have in common is that they are orthodox economic bureaucrats from the Ministry of Finance. Candidate Deok-soo Han for Prime Minister and Candidate for Chief of Staff Kim Dae-gi came from the Economic Planning Board and the Ministry of Planning and Budget, which were the predecessors of the Ministry of Strategy and Finance. In addition, if former Vice Minister Choi is appointed as the Chairman of the Financial Services Commission, the chief of staff who assists the president from his closest aides, the prime minister, the deputy prime minister for the economy, and the chairman of the Financial Services Commission will all be bureaucrats from the Ministry of Strategy and Finance.

Government decides to join ‘CPTPP’

On the 15th, the government decided to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

According to the Ministry of Strategy and Finance, the government held the ‘228th Foreign Economy Ministers’ Meeting in writing, presided over by Hong Nam-ki, Deputy Prime Minister and Minister of Strategy and Finance, on the same day and decided on the ‘CPTPP membership promotion plan’. The written meeting was attended by Deputy Prime Minister Hong (Chairman), the Ministry of Science and Technology, the Ministry of Foreign Affairs, the Ministry of Agriculture and Food, the Ministry of Industry, the Ministry of Environment, the Ministry of Land, Infrastructure and Transport, the Ministry of Oceans and Fisheries, the Ministry of SMEs and Startups, the head of the national affairs office, and the chief economic officer of the Blue House.

The government is expected to report this to the National Assembly as early as next week, and then begin the full-scale application process for CPTPP member countries in the future. It is expected that it will take at least a year or more to actually join the CPTPP.

2 years 1 month only remove social distancing

The social distancing that was implemented to prevent the spread of COVID-19 will be lifted on the 18th. In two years and one month since the introduction of social distancing in March 2020, all restrictions on the number of people at private gatherings and the business hours of cafes and restaurants will disappear.

Prime Minister Kim Bu-gyeom held a meeting of the Corona 19 Central Disaster and Safety Countermeasures Headquarters at the government complex in Seoul on the 15th and said, “The limit of business hours for multi-use facilities, which is currently until 12 pm, and the limit of the number of private gatherings, which were allowed up to 10 people, will be lifted next Monday (18th). It will be completely released from now on,” he said.

It also decided to remove the limit on the number of religious facilities, which currently allows up to 299 people, for events, gatherings, and up to 70% of the capacity. From the 25th, the ban on eating and drinking in multi-use facilities such as movie theaters, indoor sports facilities, and religious facilities will also be lifted. However, the mandatory system to wear a mask will be maintained for the time being.

Prime Minister Kim said, “It is inevitable to maintain indoor masks for a considerable period of time.”

On the 14th, one day before the government’s announcement of the government’s social distancing adjustment plan and the quarantine and medical system routine, a business notice is posted at a karaoke room near Jonggak Station in Seoul until 12:00 PM. /Reporter Honam Moon munonam@

Sejong = Reporter Lee Dong-woo dwlee@asiae.co.kr