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S. Korea has 'no urgency' to cut key lending rate soon: IMF directorBy Yonhap
Published : Oct. 14, 2023 - 13:14
MARRAKESH, Morocco -- South Korea has "no urgency" to lower its key lending rate as bringing down inflation still remains a priority, a director at the International Monetary Fund said Saturday.
Krishna Srinivasan, the director of the Asia and Pacific Department at the IMF, made the remarks, noting that the Bank of Korea has "appropriately" maintained a monetary policy tightening approach as inflation remains elevated above its 2-percent target.
"Given the fact that inflation is still above the target range, we expect or we would recommend the Bank of Korea to keep a tightening stance … There's no urgency to cut rates soon," he said in a meeting with reporters on the margins of the two-day G20 Finance Ministers and Central Bank Governors Meeting that ended Friday.
South Korea's on-year consumer prices accelerated by the most in five months in September, rising 3.7 percent on-year, driven by higher oil costs and rising prices of some agricultural products.
The BOK held its key interest rate steady at 3.5 percent in August for the fifth consecutive time as it took into account a slowdown in growth and other factors in the midst of moderating inflation.
Concerning exports, Srinivasan said the recovery will be affected mostly by the global tech cycle as well as the economic recovery of China, the top trading partner of Asia's No. 4 economy.
"We note that there could be upside risks and downside risks," he said, noting that if China grows faster than the IMF's projection of 4.2 percent next year, it will give a boost to the South Korean exports.
South Korea's exports fell for the 12th consecutive month in September but logged the smallest on-year decline so far this year, as global demand for semiconductors has been on the recovery track.
The director pointed out it is "the right way to go" to reduce expenditures handed out during the pandemic.
"The growth is slowing because of the weakening external demand. So you don't want to provide fiscal stimulus now," the director said. "I think it is important that you have a well fleshed out medium-term fiscal framework with fiscal rules so that you keep an anchor for public debt."
He was referring to South Korea's envisioned fiscal policy, which centers on capping the fiscal deficit at 3 percent of the country's gross domestic product.
Touching on the Israel-Hamas conflict in the Middle East, the director said the geopolitical tensions from the region may weigh down on the economies of Asian countries that depend on imports for their energy needs.
"If oil prices go up by 10 percent, then global output falls by 0.15 percent," he said. "Asian economies depend a lot on oil, so they are likely to be more affected by the shocks. The number for Asia in terms of inflation will be higher." (Yonhap)
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