BOK governor warns long-running oil price cap would strain public finances
In short
Bank of Korea Governor Shin Hyun-song (신현송) said on 22 October that the oil maximum price system helps curb consumer prices in the short term but would cause fiscal problems if it lasts. He spoke at a press conference after the Monetary Policy Board held the base rate at 3.00%.
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Bank of Korea Governor Shin Hyun-song (신현송) said on 22 October that a long-running oil maximum price system would cause considerable problems for public finances. Yonhap, Newsis and Korea Economic Daily all carried the remark in their headlines as breaking news. [ 1 , 2 , 4 ]
According to Korea Economic Daily, Shin spoke at a press conference held after the Monetary Policy Board kept the base rate at 3.00%. He said the system has an effect of restraining consumer prices for a time, but that the longer it lasts, the more the price structure is distorted and the harder it is to undo. Korea Economic Daily read this as meaning that prolonged price limits distort market price setting and can make a later return to normal difficult. [ 4 ]
Shin also pointed to outside evidence. He said the International Monetary Fund has warned fairly clearly that energy price limits should not last long, and that examples from other countries show considerable fiscal problems. [ 4 ]
Asia Economy's headline quoted Shin as saying that, if it goes on for long, the policy is hard to reverse. [ 3 ]
Why it matters
The central bank governor's comments put a long-term fiscal cost on the oil price cap, as reported by Korean business outlets and Yonhap. The documents give no sign of any change to the policy itself.
Key facts
- Governor Shin Hyun-song said that if the oil maximum price system lasts long, it will cause considerable fiscal problems. [ 1 , 2 , 4 ]
- He said the system has a temporary effect of restraining consumer prices, but the longer it lasts, the more it distorts the price structure and the harder it becomes to reverse. [ 2 , 4 ]
- He spoke at a press conference on 22 October after the Monetary Policy Board kept the base rate at 3.00%. [ 4 ]
- Shin said the International Monetary Fund has warned fairly clearly that energy price limits should not last long. [ 4 ]
- He also said that examples from other countries show considerable fiscal problems. [ 4 ]
Confirmed by several sources
Still unclear
- How long the oil maximum price system is meant to stay in place. The documents do not say when the system started, who runs it or how long it is planned to last.
- The size of any fiscal cost. Shin gave no figure in the text available.
- The IMF warning and the other-country examples Shin cited. Only one article reports them, and it gives no details of the IMF warning or the countries.