The growth rate is getting lower, but why the Monetary Policy Committee couldn't lower the benchmark interest rate?

■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: January 20, 2025 (Monday)
■ Talk: Professor of Economics at Inha University, Chun So-ra

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information.
◆ Reporter Cho Tae-hyun (hereinafter referred to as Cho Tae-hyun): It's time to learn the economic story of the big picture that can be helpful to know. It's time to reveal the heaven. Today, we invited Professor Chun So-ra of Inha University's Department of Economics to the studio. Please come in.

◇Chun So-ra, Professor of Economics at Inha University (hereinafter referred to as Chun So-ra): Hello,

◆ Cho Tae-hyun: A new one. There are several notable economic schedules, but Trump's inauguration could also be the most visible schedule. Is the professor also paying attention?

◇Cheon-Sora: Yes, Trump already has several events even before his inauguration. I also enjoyed the news so much, and after Trump's inauguration, there is the World Economic Forum Annual General Meeting in Davos, and I think people are very interested in Trump's speech. And the internal schedule is that the Bank of Korea will announce its annual economic growth rate and breaking news for the fourth quarter on the 23rd. In addition, the Bank of Japan has various types of news this week.

◆ Cho Tae-hyun: There are a lot of schedules, but Trump's inauguration seems to eat a lot of other issues. Did you see the official picture of Trump?

◇Cheon-Sora: Yes, I saw it. I think he's a person who knows the nature of media well. I think it's because he's also been doing a lot of broadcasting activities. First of all, even before Trump's inauguration, he has been receiving a lot of attention from various foreign media, and on the 18th, he already invited about 500 people to set off fireworks. And I have an inauguration schedule from the 18th to the 21st, and on the 19th, about 20,000 people have already held a MAGA rally in an indoor stadium, or a victory rally called Make America Great Again. It's about 2 a.m. tomorrow in Korean time, and usually presidents visited the church for the first time since President Roosevelt. St. John's Episcopal Church, for example, has a series of schedules such as an oath of office and an inaugural address. The media is paying attention to what kind of things to talk about in the future. I think you can see it like this.

◆ Cho Tae-hyun: I can't help but be very nervous about what I'm going to say and how strong I'm going to do it, but I think the atmosphere is very different from the first inauguration. What do you think?

◇Cheon-Sora: First of all, there were anti-Trump protests when the first period took office in 2017. So, there was a lot of tension in Washington, but I've already experienced it once, and this time, through the re-election, there have been no celebratory rallies or large-scale rallies. These show how much more the perception of Trump has changed. You can look at it like this.

◆Jo Tae-hyun: Looking at the report from the New York Times last night, the number of Americans who do not support Trump but support Trump's policies has increased a lot. There were reports like this. Looking at that, I think the atmosphere has definitely changed.

◇Cheon-Sora: There is an all-time high concentration of money in such a tone. We're talking about this, too. So, the inauguration ceremony usually includes a national budget, but the event is usually covered by private donations. But during the Obama years, it raised about 53 million dollars. Trump raised about $107 million in the first period, but now up to $170 million in the second period. So, when converted into Korean won, it collected about 248.2 billion won. So if you look at that, you can see that the atmosphere has changed a lot.

◆ Cho Tae-hyun: The VIP ticket you mentioned is for sale for money. But even if you wanted to sell more, it was so popular that it was sold out early, how much was it?

◇Cheon-Sora: First of all, the inauguration tickets are free, but you can buy them this time. So if you give some donations, you'll get them for free. So I gave a VIP ticket to anyone who donated a million dollars or raised two million dollars to participate in all six official events. That's why the inauguration ceremony, eating, and other treatments actually vary depending on the grade, but they were sold out early. So there was a phenomenon where you couldn't attend even after paying a million dollars. And in the case of admission tickets, about 200,000 were distributed through purchase. So now, Hyundai Motor has donated about $1 million to the inauguration ceremony. This news is being reported, so Hyundai Motor Vice Chairman will attend. That's what we're talking about.

◆ Cho Tae-hyun: I think a lot of people are interested in the appearance of a scary person like the 2nd disease. However, the biggest concern is that Trump has said it publicly several times. On his first day in office, he will be a dictator. I don't know if it's going to be on my first day in office, but anyway, you've said this many times, and eventually you're going to issue an executive order on a large scale. That's what it means. What kind of stories are coming out?

◇Cheon-Sora: First of all, the most notable thing is the regulation related to the energy economy. In the meantime, when it comes to the eco-friendly policy of Biden's policy, it's the opposite. So we're considering an executive order to encourage fossil fuel production and consumption more. In the meantime, the Biden administration has had subsidies for electric vehicles, various green-related orders, subsidies, and I'm going to issue an executive order that turns these things around in the absence of incentives for electric vehicles. That's what we're talking about. First of all, there are some parts that are possible through an administrative order. But first of all, it might be up to you when you think about the damage you've been doing, but I think you can think about putting these things in the upper hand. And we will establish a new external import agency on customs duties. There are comments like this. And I think there will be a lot of interest in tariffs, but there has been no specific roadmap for Trump's remarks, but I think that some U.S. trade policy itself has been very unfair. But we gave you too much. That's what I'm talking about. So, we're considering these unfair practices through tariffs, and we're going to create an environment where we can spend more dollars through various sanctions, these kinds of executive orders. You can look at it like this.

◆ Cho Tae-hyun: There will also be an executive order to expel a large number of illegal immigrants. There are stories like this, too. What are you looking forward to the most?

◇Cheon-Sora: As I said, I'm very interested in energy. First of all, since the launch of Biden, global trends have changed to eco-friendly. So, there was a movement such as carbon neutrality internationally, and there was also a movement to use energy such as RE100 and renewable energy in the private economy. If these things can go back to the forest, and if these policies are announced, as soon as the news is released, it can actually affect inflation and exchange rates. I think that those are the topics that I'm personally interested in.

◆ Cho Tae-hyun: We should pay attention to this part, too, as the word "trumflation" is even openly mentioned. After the part about what kind of movement Trump will make on the first day comes out, we will take a closer look with the expert. Let's move on to the next topic. This is the next topic, but it's a story that connects everything. Among the major schedules this week, there is a schedule to announce Korea's growth rate in the fourth quarter. It won't be that good, right?

◇Cheon-Sora: First of all, the government made a presentation through the Green Book on the 17th. There's a little bit of different writing. It's a little similar to saying that employment slows down no matter what sentiment shrinks due to increased external uncertainty, but compared to last month, there were concerns about an increase in economic risks. In a way, we are formulating downside risks now. I gave a signal about the downside risk. And anyway, various figures are coming out badly through the construction of domestic consumption, but to give a hint, there is a high possibility that it will be below 0.2% of the previous year, and this is how they signaled to some extent. So if you look at it now, the figures are very bad. So, compared to the previous month, the unemployment rate was very high, and even looking at the number of employed people for a year alone, it came out a little bit last month. Of course, monthly volatility is high, and sentiment has fallen significantly from 100 to 88 in December. In fact, there is a possibility that the annual growth rate will be slightly lowered, but next year's growth rate is not so bright.

◆ Cho Tae-hyun: I asked you this question because in the end, you should have responded by cutting interest rates, but you couldn't cut interest rates last week, right? Now that we're up to the Trump era, overall, it's a perfect economic storm, and everything is bad. Why do you think the Monetary Policy Committee has not chosen this country when such an evaluation is made?

◇Cheon So-ra: First of all, if you look at the remarks made at the meeting with Lee Chang-yong's reporters, they say that the exchange rate is unnecessarily high. And I was strongly toned down, but when I look at the economy, I'm saying, "You have to get down." However, considering the unnecessarily high exchange rate and the additional effects of these things on the economy, wouldn't it be better to take a breath? As a result, after very in-depth discussions, five out of six supported the freeze and one expressed a minority opinion. It is known as this. The content of the minority opinion is similar to what we have covered, but the exchange rate has risen, but there is a possibility that it will be reflected in the market in advance, and there may be directions that the market will already be cut to some extent when looking at domestic demand. In view of this, there was a minority opinion that it was necessary to prevent things from slowing down the artificially falling parts of the current economy. Now, he gave me forward guidance. So, when it comes to opinions on interest rate cuts within three months, all six people are saying that they have opened up the possibility of a cut.

◆ Cho Tae-hyun: Then it can be said that after three months, they gave a guidance that the key to the cut was not to give up. The won-dollar exchange rate continues to move in the late 1450 won range, so the exchange rate is very high. These things would have had a direct impact, but how does an exchange rate rise negatively affect our economy?

◇Cheon-Sora: First of all, the price of gasoline. I was surprised when I saw that a lot of people came out when I went up yesterday to put in gasoline. Import prices have already been on the rise for three months now. So even if the price of crude oil is constant in dollar terms, if the exchange rate itself goes up, the price that domestic consumers have to pay goes up, and at the press conference announced by the Bank of Korea, when it remained around 1,470 won, the consumer inflation rate previously predicted by the Bank of Korea was about 1.9%. There's a high possibility that this will go over 2%. So first, rising import prices and secondly, these can be passed on to consumer prices. And there are areas where consumption and such things can be slightly restricted by the rise of the exchange rate itself.

◆ Cho Tae-hyun: Nevertheless, I couldn't lower interest rates. If this is the reason, the sluggish economy is also serious, but it has maintained its intention to continue the cut after the exchange rate and other things have hindered it. Can we go like this?

◇Cheon-Sora: I think Trump is the biggest uncertainty for now. It would be difficult for us to be completely independent of the US interest rate policy now, but there are mixed indicators in the US such as CPI and employment indicators. So consumer prices are now at 2.9% in the U.S., but if you look at the previous month's figures, it's going up and down and then slowing down this month. 2. 9% is more consistent than the market's expectations, but it fell when looking at the core prices. So there is a certain slowdown. These things may be a bit of a boon, but employment came out very well. Looking at that, there are talks about the speed or freeze of the cut, and is it yesterday and today? If you look at Fed Watch, these interest rate forecast numbers, I think the freeze is about 97% this January. There is not much possibility that things like March or May will be cut further.

◆Cho Tae-hyun: I checked now and the possibility of freezing this time is 99.5%.

◇Cheon-Sora: That's why I think the weight of the cut is gradually disappearing, and some say they will completely replace the leadership of FED's FOMC after Trump's inauguration. There are also comments like this. In view of that, it may be different from the existing interest rate policy stance. I'm thinking that these things can be quite a burden on Korea's monetary policy decisions.

◆ Cho Tae-hyun: Speaking of FOMC, let's take a look at the U.S. The U.S. FOMC is scheduled for next week. This time, the possibility of a freeze is very high, but if Trump orders tariffs or anything, prices will rise again, and if workers are kicked out, there will be labor costs and many problems. If this happens, shouldn't we raise interest rates rather than lower them?

◇Cheon-Sora: First of all, there's some concern about inflation from Trump. For now, it may be fortunate that it is a part that can be expected to some extent, but because market expectations are melted to some extent, it can lead to an imbalance in the immigration policy and labor market you just mentioned. If demand is higher than labor supply, there are some areas where related labor costs can increase, and if tariffs become a reality, there is an additional burden that can lead to inflation for domestic consumers in the United States. And I think it's more desirable to see it as a factor that can rise rather than a slowdown in inflation because various policies, such as tax cuts, can act as a factor that can deepen fiscal shortages and stimulate interest rates on government bonds. In that way, Korea will have no choice but to reduce its capacity to cut interest rates further.

◆ Cho Tae-hyun: I'm considering this, but I really don't know how the policy will come out. This person is a really unpredictable person, so many situations overlap, so in the end, there are talks about the extra budget that the fiscal policy should be more active. President Lee Chang-yong also said that an extra budget is needed and it should be done as soon as possible, but why is the timing considered so important?

◇Cheon-Sora: First of all, the government is saying that it will execute early, but we will make an extra budget anyway to talk about that period, whether we can afford it or not, can also play a role in people's psychology. So, if we have enough financial resources, we can slow down the economic downturn through finances. If you think about it like this, you have to strengthen your will for the supplementary budget quickly to reflect the psychology and we will forecast each institution's growth rate, but there are needs to be maintained or reflected in this possibility. So, with the growth rate falling in succession now, if this can reduce the economic growth rate through the supplementary budget, this can give a little more signaling. I think we can interpret it in this sense.

◆ Cho Tae-hyun: First of all, it could affect psychology. So now, there are talks about the extra budget, but he also expressed his opinion on the size and support method. Overall, what size or support do you think is appropriate?

◇Cheon-Sora: I've said this before, rather than an excessive supplementary budget, but I think we need an extra budget to fill in the holes. In terms of scale, President Lee Chang-yong is talking about Article 15 to 20, but I agree with Article 10 to 20 to some extent, and I expressed a little opposition about the way to apply. So, rather than public welfare subsidies or any large-scale all-round support measures, the supplementary opinions that are coming out now are difficult for small business owners and self-employed people. In this regard, I said, "Isn't it more appropriate to support the screening that we target?" So, for example, if the public welfare support fund is set on a large scale, there is a possibility that this will not directly lead to those in need, so I said that some screening support or targeting policy seems more desirable. I agree on this to some extent, and in the end, we have to go in the direction of further supporting the damaged parts to prevent some additional side effects. Selective support seems a little more desirable because it can give more room for inflation or high-cost classes to spend, and some things that are difficult for those who are in need can be reduced. I personally agree with you.

◆ Cho Tae-hyun: Actually, we've already experienced that it wasn't very effective when we applied for all of them last time, and it's an economic theory that we have to make choices and focus, but there's a little question mark why this story keeps coming out. This has been Professor Chun So-ra of the Department of Economics at Inha University. Thank you for talking today.

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