South Korea Must Keep Expansionary Policy, Yoon Says

By Shinhye Kang

Aug. 26 (Bloomberg) -- South Korea needs to maintain its expansionary policy until the economy “substantially recovers,” Finance Minister Yoon Jeung Hyun said.

“There is a risk that the economy may fall into a double dip if the government shifts the stance of policy too fast,” Yoon said at a meeting with business executives today. “It’s premature to discuss the timing of an exit strategy.”

Yoon also said the gain in second-quarter gross domestic product may be revised higher. South Korea’s economy last quarter expanded at the fastest pace since 2003, leading a regional economic rebound with China and Singapore.

The Bank of Korea, which cut the key rate by 3.25 percentage points between October and February, left its benchmark interest rate unchanged on Aug. 11 at a record-low 2 percent. The reductions were the most aggressive easing since the bank began setting a policy rate a decade ago.

The government allocated extra funds and spent 68 percent of this year’s budget through July in an effort to frontload expenditure and boost the economy.

“South Korea’s economy has gradually improved, but it is too early to say that the trend will continue as there are still many uncertainties,” Yoon said today. “We need to have a ‘wait-and-see’ strategy and keep active monetary and fiscal policies until the economy substantially recovers.”

Yoon also said the country’s housing market isn’t overheating.

To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net.