Bank of Korea Sees Limited Inflation Effect From 2027 Budget

what happened

Bank of Korea Governor Shin Hyun-song expects next year’s planned increase in government spending to put only limited pressure on inflation. Dow Jones Newswires reported that, speaking Monday at a parliamentary audit of the central bank, Shin said the proposed 2027 budget would add just 0.06 percentage point to headline inflation.

Shin also played down concerns that higher public spending could conflict with restrictive monetary policy. He said the budget proposal could lift South Korea’s gross domestic product growth in 2027 by 0.5 percentage point.

Submitted in September and still awaiting parliamentary approval, the plan calls for a record 12.8% rise in government spending to 820.9 trillion won, equivalent to $612.41 billion. In August, the central bank forecast 2.9% GDP growth for South Korea in 2027 and average inflation of 2.3%. It raised interest rates for a second consecutive meeting that month, expecting inflation to stay above its 2% annual target for an extended period.

why it matters

The governor’s assessment suggests the central bank sees the proposed fiscal expansion as unlikely to materially alter the inflation outlook. Its projected contribution to economic growth may nevertheless factor into future policy discussions.

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