Bank of Korea Governor Shin Hyun-song said the semiconductor boom is likely to continue through 2028. On the government's expansionary fiscal stance, the governor said "sustainability is critical" and pledged to keep advising the government so that fiscal policy operates in harmony with monetary policy.
At a parliamentary audit of the Bank of Korea held at the central bank on the 12th, Shin was asked by Rep. Park Soo-young of the People Power Party how long the chip upturn would last. The governor replied to the effect that "the market expects it to continue at least through next year and the year after."
Park argued that because the tax revenue gains from the chip upturn are unlikely to persist over the long term, expanding fiscal spending on that assumption is risky.
Park noted that the government's budget proposal for next year stands at 820.9 trillion won, up 12.8% from this year, and that the scale of fiscal spending grows further when a 45 trillion won future response fund is taken into account. "The Bank of Korea should put the brakes on reckless fiscal expansion," he said, also voicing concern about rising national debt and how the future response fund will be financed. On the fund, he pointed out that 104.4 trillion won is to be raised through borrowing while the target return has been set at 3.85%, raising the possibility of a negative spread between funding costs and investment returns.
He also raised concerns about money supply growth and inflation. Park said growth in M2, a broad measure of money supply, is running higher than in the U.S. and that consumer inflation stands in the high 2% to low 3% range, stressing the central bank's role in price stability. If the Bank of Korea raises its policy rate to contain inflation while the government expands fiscal spending, households could face a heavier interest burden, he said.
"Chip tax revenue could decline, but spending that has been increased does not come back down," Park said. "If you expand fiscal spending and then revenue falls, will you end up running the country by issuing government bonds?" He added: "We must not turn a blind eye to reckless fiscal expansion and leave the public to bear the resulting inflation burden," calling for a more active role from the central bank.
In response, Shin said: "Sustainability is absolutely critical for fiscal policy." He added, "I will continue to offer my views at all times so that monetary and fiscal policy are operated in harmony."