Finance Ministry vows to beef up monitoring of excess liquidity

Vice Finance Minister Kim Yong-beom vowed on Thursday to strengthen monitoring on swelling of liquidity spilled over to the country’s asset markets amid concerns over the stock market’s sharp pandemic-era rally.

Buoyed by fiscal stimulus and relief packages provided during the COVID-19 crisis management procedure, the abundant liquidity has flown into the stock and real estate markets to the point where the government is beginning to worry whether the real economy could catch up.

“Should the financial markets continue sustainable advances, the success of containing the new coronavirus outbreak and a recovery of the real economy should be backed up,” Kim said in a macroeconomic finance meeting held at the Korea Federation of Banks in central Seoul.

The country’s benchmark KOSPI index broke 3,000 for the first time on Wednesday, as retail investors add an influx of capital to expectations for export recovery.

”Authorities are facing the task of closely managing liquidity that has sharply increased in the process of crisis responses so as to not hurt financial stability and are exploring ways for a soft-landing with unwinding measures to tackle the pandemic,“ Kim said.

Channeling the ample funds into more productive projects such as the Korea New Deal program, initiated by President Moon Jae-in to foster green and digital industries, will help the country to move toward a “strong and swift” economic recovery, he said.

He asked large conglomerates and institutional investors to follow the government’s lead in investing into future growth engines and sustainable growth initiatives.

For the real economy to pick back up, the government will provide policy support for exports that have been showing signs of recovery despite virus-related uncertainties. In December, monthly exports advanced 12.6 percent on-year to reach $51.4 billion. It marked the first time since November 2018 that the export volume had surpassed the $50 billion mark.

“Exports of chips, eco-friendly cars and bio health sectors have showed clear growth. The proportion of exports of small and medium-sized firms expanded, brightening future prospects,” he said.

Despite upbeat outlooks on the global economy this year with expectations of a normalization of economic activity and rollout of vaccines, the impact of COVID-19 still lingers, he said.

He cited the World Bank’s ”Global Economic Outlook“ report released on Wednesday, which lowered its global economic growth forecast for 2021 to 4 percent from its June projection of 4.2 percent.

“Still, many countries are struggling to control the resurgence of COVID-19. The disruption caused by the pandemic has not come to an end,” Kim said.

It is necessary to pay keen attention to risk factors that could occur during the process of economic recovery such as a potential shift in US monetary policy position which could come earlier than expected if inflation makes a comeback this year, he added.

By Park Han-na (hnpark@heraldcorp.com)