Shin Hyun-sung, Governor of the Bank of Korea, stated that the oil price cap has played a significant role in curbing consumer price increases. However, he warned that if the policy is prolonged, it could lead to price distortions and fiscal burdens.
During a press conference following the Monetary Policy Committee meeting on October 22, Shin said, "The oil price cap has been quite effective in temporarily preventing cost increases from being passed on to other items."
He noted, "Even in a situation of unstable oil prices, the oil price cap has contributed significantly to keeping consumer price increases at this level."
However, he expressed concerns about the long-term side effects of the policy. Shin remarked, "The longer it lasts, the more distortions will occur in the price structure," adding that there could be situations where consumption does not decrease even when it should, potentially leading to long-term fiscal issues.
He also referenced the International Monetary Fund (IMF), which has repeatedly pointed out that subsidies on energy prices should not be sustained for long periods. He explained that examples from other countries show that prolonged implementation of such policies can lead to fiscal problems.
Shin concluded by stating, "The government is well aware of these issues, and although the policy has been extended, I believe they are clearly considering an exit strategy."
* This article has been translated by AI.
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