|S&P Global Ratings Asia-Pacific chief economist Shaun Roache speaks during the Institute of Global Economics' online seminar, Tuesday. / Yonhap|
By Park Jae-hyuk
S&P Global Ratings has indicated support for lower interest rates and a larger fiscal stimulus for Korea to sustain its economic recovery from the COVID-19 pandemic.
Shaun Roache, the chief Asia-Pacific economist of the global credit rating agency, said on the sidelines of his appearance at a seminar organized by the Institute for Global Economics, Tuesday, that the Korean government should ensure that financial stimuli should not be withdrawn too quickly.
The economist remained optimistic over the outlook of the local economy saying it would grow 3.6 percent, this year, higher than the 3 percent growth outlook predicted by the Bank of Korea (BOK), the Ministry of Economy and Finance (3.2 percent) and the OECD (2.8 percent).
However, he pointed out Korea's temporary, part-time and self-employed workers have been hit especially hard by the pandemic and there is still a long way for the country to go in terms of achieving better employment statistics.
Roache also said that weakened consumption due to the continued job market deterioration has resulted in lower inflation, constraining the nation's real policy rate.
"The BOK has been reluctant to cut its policy rate below 0.5 percent citing financial stability concerns," he commented. "However, a low neutral interest rate and persistently low inflation mean that BOK policy is quite tight for this point in the cycle."
The central bank will make a decision on the benchmark rate during its first monetary policy board meeting of the year, Friday. Most experts expect the BOK will leave the rate unchanged, and maintain it at 0.5 percent throughout the year.
Roache advised the BOK against hiking the key rate too soon, adding any move by the U.S. Federal Reserve will affect the central bank's decision on its interest rate.
Although some critics said the low rate has widened the disconnection between the stock market and the real economy, the economist dismissed this concern, saying the gap was not serious enough to raise any alarms.
He said the central banks are willing to take risks at this moment.
During the seminar, Roache also maintained his view expressed in the third-quarter of last year that the Asia-Pacific economy's real GDP growth will be 7 percent in 2021.
He said new free trade agreements, investment treaties and the new U.S. administration will point to a more competitive and geopolitical environment. In particular, he pointed out China could be a game changer with its "dual circulation" policy that it is using to re-engineer its existing trade models.