[Economic Outlook] This Week's Base Rate Decision... Announcement on Employment Recovery in Face-to-Face Service Industry and More

COVID-19 4th Wave and External Financial Risks Mostly Seen as "Frozen"
Some Opinions Also Call for "Additional Hikes" Due to October Inflation Rise

September Employment Trends in Focus... Key Is Recovery of Face-to-Face Service Sector

Interest Grows Whether Excess Tax Revenue Forecast Exceeds 31.5 Trillion Won

Lee Ju-yeol, Governor of the Bank of Korea, is seen striking the gavel at the Monetary Policy Committee's plenary meeting held on the morning of August 26 at the Bank of Korea in Jung-gu, Seoul. At the August Monetary Policy Committee meeting, the Bank of Korea raised the base interest rate by 0.25 percentage points from 0.5% to 0.75% per annum for the first time in 15 months. (Image source=Yonhap News)

[Sejong=Asia Economy Reporter Moon Chaeseok] This week, the Bank of Korea's Monetary Policy Committee (hereinafter referred to as MPC) will decide on the base interest rate. The latest employment and fiscal indicators will also be released.

Particularly drawing attention is whether the MPC will raise interest rates. While the majority opinion leans toward a 'freeze' due to the possibility of economic contraction from the fourth wave of COVID-19 and external financial risks such as the China Evergrande Group crisis, there are also opinions that the rate might be raised again following the August MPC meeting due to variables like inflation (price increases).

Household Loans, Asset Price Surge, Inflation... Opinions for 'Interest Rate Hike' Also Exist

Customers shopping at a large supermarket in Seoul on the 24th of last month, when the producer price index, considered a leading indicator of consumer prices, rose for the 10th consecutive month to reach an all-time high. Photo by Jinhyung Kang aymsdream@

The MPC will discuss whether to adjust the base interest rate at the monetary policy direction meeting on the 12th. Previously, on August 26, the MPC raised the base interest rate by 0.25 percentage points (p) from 0.5% to 0.75% per annum for the first time in 15 months.

Due to the side effects of a large amount of money circulating in the market, such as an increase in household loans and rising asset prices causing 'financial imbalances,' and growing concerns about inflation, there are opinions that the base interest rate could be raised further at this October meeting.

Although financial imbalance and inflation issues remain, given that recent economic indicators such as industrial activity trends are poor due to the fourth wave of COVID-19 and social distancing measures, and financial markets like the stock market are unstable, many expect the MPC to keep the base interest rate unchanged.

Impact of the Fourth Wave of COVID-19... Recovery of Face-to-Face Service Industry?

[Image source=Yonhap News]

The Statistics Korea will release the September employment trends on the 13th. Attention is focused on how the fourth wave of COVID-19 has affected employment.

The number of employed people in August was 27,603,000, an increase of 518,000 compared to a year earlier. Despite the fourth wave of COVID-19, the increase remained in the 500,000 range for three consecutive months following June (582,000) and July (542,000).

However, employment in face-to-face service industries such as retail, accommodation, and food services, as well as manufacturing, which were directly hit by the COVID-19 pandemic and social distancing policies, had contracted. There is keen interest in whether the sluggishness in these sectors continued last month.

"Tax Revenue Increased by 31.5 Trillion Won More Than Expected" - Did Additional Tax Revenue Exceed Hong Nam-ki's Statement?

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki attending the Ministry of Economy and Finance's audit at the National Assembly's Planning and Finance Committee on the 6th, reviewing documents during the audit. Photo by Yoon Dong-joo doso7@

The Ministry of Economy and Finance will release the monthly fiscal trends on the 12th. This fiscal trend report will include government revenue and expenditure, fiscal balance, and national debt as of August. The focus is on how much national tax revenue has increased.

From January to July this year, national tax revenue was 223.7 trillion won, an increase of 55.1 trillion won compared to a year earlier. Tax revenue related to economic recovery, such as corporate tax and value-added tax (57.3 trillion won), increased by 25 trillion won compared to the same period last year, and asset-related tax revenue linked to real estate and stocks rose by 15 trillion won.

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki recently stated at the Ministry of Economy and Finance's parliamentary audit that this year's excess tax revenue could exceed the previously predicted 31.5 trillion won.

This content was produced with the assistance of AI translation services.