* Finance minister shuts door on supplementary budget plans
* No mention of rates, although market sees possible cut
(Adds analyst comment, background)
By Christine Kim
SEOUL, July 16 South Korea's new finance
minister and its central bank governor both highlighted weakness
in Asia's fourth-largest economy on Wednesday, adding to market
expectations that an interest rate cut could be in the offing.
While Finance Minister Choi Kyung-hwan did not mention
interest rates in his inauguration speech and shut the door on
the prospect for a supplementary budget, he promised a bigger
budget next year, citing weakened demand and sluggish output.
Also on Wednesday morning, Bank of Korea Governor Lee
Ju-yeol said his assessment of the economy in April, when he
said interest rates should rise if the economy kept to its
projected growth path, had been too optimistic.
"You can signal a move 23 months prior, but if something
unexpected happens in even a month's time that could change
policy," Lee told reporters on the sidelines of an event.
The South Korean won was down 0.6 percent as of 0105
GMT following Choi's remarks, after they reinforced views that
the government would keep a lid on further gains in the won to
support local exporters' price competitiveness.
September futures on three-year treasury bonds rose
0.05 points to trade at 106.81.
"Right now the market sees a rate cut happening no matter
what even if the current growth rate doesn't warrant a cut, and
if the central bank doesn't lower interest rates that could hurt
markets and sentiment," said Park Sang-hyun, chief economist at
HI Investment & Securities in Seoul.
"Choi has been around for a long time and judging by his
experience he will have more propelling power in terms of
policy," Park said of the veteran lawmaker.
However, all but two economists in a Reuters poll last week
predicted that the Bank of Korea's next move would be a rate
The central bank has left rates unchanged for 14 months. The
last time it moved rates was when it cut them in May 2013, under
apparent government pressure.
South Korea's economy has slowed in recent months, as a
ferry sinking in April that left more than 300 people dead or
missing acted as a drag on already-anaemic domestic spending
while exports have been bogged down by weakening demand from
China, its biggest market.
The Bank of Korea earlier this month said the economy would
expand by 3.8 percent this year, down from its earlier forecast
of 4.0 percent.
Ronald Man, an economist at HSBC Hong Kong, told Reuters on
Wednesday that the government may run a larger-than-projected
budget deficit in 2015, pushing back its target to achieve a
The finance ministry, under Choi, is also expected to speed
reform measures, including those aimed at raising the female
participation rate in the workforce.
"The importance of domestic consumption is being stressed,
but at this point I doubt the government will be able to let
their focus on exports weaken," said a foreign exchange dealer
at a bank in Seoul.
The dealer said dollar demand from market participants
increased on comments from both the central bank governor and
finance minister, as expectations for a rate cut grew.
(Additional reporting by Yena Park and Taemin Chang; Editing by
Tony Munroe and Jacqueline Wong)