South Korea's economic authorities on Wednesday agreed to deploy emergency government-bond buybacks and curb new offerings if yield rises are deemed excessive, using part of around 63.2 trillion won ($46.6 billion) in tax windfall.
The measures were discussed at an expanded macro-fiscal-financial meeting chaired by Deputy Prime Minister and Minister of Finance and Economy Lee Hyoung-il at the Government Complex Seoul earlier Wednesday.
The meeting brought together Minister of Planning and Budget Park Hong-keun, Financial Services Commission Chairman Lee Eog-weon and Bank of Korea (BOK) Gov. Shin Hyun-song.
Officials assessed that domestic bond yields have continued to rise as higher global interest rates, tightening by major central banks and domestic factors weigh on the market.
The three-year Korean government bond yield recently climbed to 4.119 percent, its highest since November 2022, while the 10-year yield reached 4.600 percent.
The three-year yield fell 4.3 basis points to 4.076 percent on Tuesday, while the 10-year yield dropped 6.3 basis points to 4.476 percent.
They agreed to closely monitor the Korean government bond market and take stabilization measures if the rise in yields becomes excessive, including emergency buybacks and reductions in planned bond issuance.
Part of this year's excess tax revenue could be used to reduce planned government bond issuance, the authorities said.
The government expects tax revenue to exceed the supplementary budget estimate by 63.2 trillion won, citing a faster economic recovery supported by strong semiconductor activity.
Officials agreed that the additional revenue should be used strategically, including for housing, jobs and financial support for lower-income households, with the aim of easing inequality and helping the economic recovery translate into improved living conditions.
The meeting came after the BOK recently raised its base rate and ahead of parliamentary deliberations on next year's budget, bringing fiscal, monetary and financial authorities together to discuss the policy mix.
Officials said exports and investment have remained strong and economic growth has accelerated, but pointed to elevated uncertainty from higher interest rates in major economies and geopolitical risks, as well as continued pressure on household livelihoods.
They also said fiscal and monetary policy could complement each other if government spending is directed toward vulnerable groups and investment in future growth engines, helping raise potential growth over the medium term while easing inflationary pressure.
The authorities agreed to maintain frequent communication on macroeconomic, fiscal and financial issues to improve coordination among their policies.
AJP Takeaways
- South Korea will consider emergency government-bond buybacks and reduced issuance if domestic yields rise excessively.
- The government expects 63.2 trillion won in excess tax revenue and plans to use it strategically for housing, jobs and financial support for lower-income households.
- Fiscal, monetary and financial authorities agreed to strengthen policy coordination as global and domestic interest rates remain elevated.
Copyright ⓒ Aju Press All rights reserved.