Finance Chief, BOK Governor Meet as Fiscal, Monetary Paths Diverge

Deputy Prime Minister and Minister of Finance and Economy Lee Hyoung-il visited the Bank of Korea on the 28th, six days after taking office, and met Governor Shin Hyun-song, where the two pledged to strengthen coordination between fiscal and monetary policy. Analysts said the challenge lies in reconciling the effects of the two policies, as the government expands spending while the central bank raises its base rate.

"I regard the Bank of Korea as an important policy partner with which we discuss the stability and growth of our economy together," Lee said. "I wanted to meet as soon as possible after taking office so that we can communicate more closely and pool our wisdom."

The meeting drew attention because the two officials came together at a time when the mismatch between fiscal and monetary policy has come into focus. The BOK raised its base rate in July and again in August, tightening its policy stance. The government, by contrast, is pursuing an expansionary fiscal course, setting next year's budget above 800 trillion won for the first time. Because fiscal spending can add to price pressure and weaken the effect of monetary tightening, the policy mix has taken on greater importance.

Lee stressed the need for a coordinated policy mix while he was still a nominee. At a National Assembly confirmation hearing on the 15th, he said of the BOK's rate increases that he agreed with the direction of preemptive and appropriate management, given that vast liquidity is flowing in from abroad through the current account amid the semiconductor boom. He also proposed providing targeted fiscal support to vulnerable borrowers facing a heavier burden from monetary tightening, and expanding supply capacity over the medium to long term.

In their opening remarks, however, a subtle difference in perspective emerged between the two. Lee presented prices, growth and financial stability as "shared goals" and called for an integrated review that covers finance and foreign exchange as well as asset markets including property, so that risk factors can be addressed early. That framing placed growth alongside market stability and widened the scope of policy coordination.

Shin, by contrast, emphasized that each institution should "faithfully carry out its own responsibilities" while sharing its reading of economic conditions and cooperating when necessary. While the government widened the scope of coordination to asset markets such as property, the central bank kept prices and financial stability at the center.

The meeting also prompted comments that the heads of economic and monetary policy may be meeting too often. Since the 1998 revision of the Bank of Korea Act, official visits to the central bank by the government's top economic official numbered only five through 2024, beginning with then Minister of Economy and Finance Yoon Jeung-hyun in 2009, with none between 2019 and 2023. Since last year, however, three economic chiefs have visited the BOK in about a year — former Deputy Prime Minister Koo Yun-cheol, Minister of Planning and Budget Park Hong-keun and now Lee.

A senior financial industry official familiar with the central bank said sharing and responding to market risks is necessary, but the arrangement should not appear to bundle the roles of fiscal and financial policy together with monetary policy. "The more communication increases between the government and the BOK, the more important it becomes to distinguish the roles of the two institutions without undermining the independence of monetary policy," the official said.

Some also argue that as communication increases, the task is to define clearly the scope and roles of policy coordination. During the Yoon Suk-yeol administration, then presidential policy chief Sung Tae-yoon publicly raised the need for a rate cut, stirring controversy over government intervention in monetary policy, which is why observers say the boundaries of coordination need to be drawn precisely.