The government will strengthen its response to the so-called "three highs" risks—high inflation, a strong dollar-won exchange rate, and high interest rates—in the second half. At the same time, it plans to manage fiscal policy proactively by using improved tax revenue conditions from a boom in semiconductors and the stock market.
The Ministry of Finance and Economy on the 14th released the "Economic growth strategy for the second half of 2026" reflecting these measures. Since the Middle East war, Korea's inflation, exchange rate, and interest rates have remained elevated. The government raised its inflation forecast for this year from 2.1% to 2.6%, and the won-dollar exchange rate has stayed in the 1,500-won range as "foreign investor rebalancing" demand overlaps. With market rates rising, a policy rate hike is signaled for the second half.
First, to counter high inflation, the government will inject an additional 350 billion won into discount events for agricultural, livestock, and fisheries products. In July–Aug., it will import an additional 200 million fresh eggs, and it plans to directly purchase mackerel, hairtail, and squid for low-cost supply. For 49 food items including imported fruit and raw food materials, it will apply a quota tariff of up to 30 percentage points (p).
Central public utility rates, including electricity and gas, will be frozen in the second half. Local public utility rates, such as water and public transit fares, will also be managed under a freeze policy. The government will introduce a penalty surcharge regime imposing up to twice the gains from illegal acts such as hoarding and cornering, and, if needed, it will consider extending through year-end the temporary increase of fuel price-linked subsidies for CNG (natural gas) and diesel used by cargo and passenger vehicles, and tax-free fuel for farmers and fishers.
To address the strong dollar-won exchange rate, it will set up stabilization mechanisms for the foreign exchange market. It will extend for three months the exemption from the foreign exchange soundness levy imposed on financial companies, and this year it will issue an additional $2 billion of foreign-currency foreign exchange equalization fund bonds.
It will provide a total of 14.9 trillion won in emergency operating funds to small and medium-sized enterprises hit by the strong dollar-won exchange rate. To reduce exchange-rate volatility risk, it will expand the Korea Trade Insurance Corporation's exchange rate fluctuation insurance supply from 1.2 trillion won to 1.3 trillion won, and increase the premium discount for small and medium-sized enterprises from 15% to 30%. For small and mid-sized enterprises whose core raw material import expense has risen, it will give up to double the preferential guarantee limit for import financing loans.
Measures to address high interest rates will focus on vulnerable borrowers. The Bank of Korea is reviewing an overhaul of the Bank Intermediated Lending Support Facility to expand financial support for regional SMEs and sole proprietors. The Industrial Bank of Korea (IBK) will double the supply of its "Small business Hope Dream Loan" to 3 trillion won, and Korea Development Bank's SME "on-lending" support will be expanded from 9.2 trillion won to 9.6 trillion won. The Small Enterprise & Market Service (SEMAS) will also expand eligibility for its refinancing loan that converts small business loans with annual rates of 7% or higher to 4.5%.
The government also plans to review measures to promote the conversion of variable-rate loans into long-term fixed-rate loans and to launch small-amount, low-rate, long-term loans for mid- to low-credit borrowers. It also plans to expand next year the supply of guarantees for "Sunshine Loan," a government-guaranteed loan product for low-credit, low-income households.
To manage these "three highs" risks, the government will establish in the second half a minister-level official council on macroprudential policy. At the same time, it will maintain a proactive fiscal stance. According to the Ministry of Planning and Budget, next year's total expenditure is expected to be 800 trillion won plus alpha (α), more than 10% higher than this year's main budget (727.9 trillion won).