Korea's inflation set to moderate toward 2% by end-2024: IMF team
Finance Minister Choo Kyung-ho speaks during a virtual meeting with the International Monetary Fund in Seoul, Sept. 5, 2023, in this photo released by the Ministry of Economy and Finance. Yonhap
An International Monetary Fund (IMF) team said Wednesday that Korea's inflation is likely to "moderate" down the road to reach the government's target of 2 percent by the end of 2024.
Korea's consumer prices increased on-year at a faster-than-expected pace in August at 3.4 percent due to higher prices of agricultural and manufactured goods.
"Despite a temporary rebound in August, inflation is projected to continue moderating and approach the authorities' 2 percent target by end-2024," Harald Finger, Korea missions chief at the Washington-based organization, said in a statement.
"In the current, uncertain global economic environment, the economic outlook is subject to a high degree of uncertainty," he added.
The report followed the team's two-week visit to Korea to hold meetings with government officials.
The IMF team reiterated that Asia's No. 4 economy should maintain its "restrictive stance of monetary and fiscal policy" in the near term.
"The monetary policy rate should stay above neutral for the time being to address inflation, with the interest rate path remaining data dependent," Finger said.
"With significant fiscal expansion during the pandemic and the debt-to-GDP ratio still on an upward trajectory, fiscal policy should continue to normalize, also supporting monetary policy in containing inflation," he said.
Last month, Korea's finance ministry proposed a budget of 656.4 trillion won ($493 billion) for 2024, up 2.8 percent from this year's budget of 638.7 trillion won.
It slowed sharply from the previous year's 5.1 percent rise and marked the slowest on-year growth since 2005.
Korea's central bank held its key interest rate steady at 3.5 percent for the fifth straight time as it weighs a slowdown in growth amid moderating inflation.
Finger, meanwhile, maintained the IMF's 1.4 percent on-year growth projection for the Korean economy.
"Growth is likely to improve in the second half of the year as the semiconductor sector gradually recovers, reaching 1.4 percent for the year and strengthening further over the medium term," he said.
Finger also advised Korea to seek structural reforms to address emerging challenges, including the population crisis, noting such efforts should include a "rules-based fiscal framework," along with reforming the pension system and increasing labor market flexibility.
The IMF official added the country's financial market stabilization measures should be "temporary and targeted."
"The easing of housing-related regulations and tax cuts should strike a balance between preventing excessive price falls and allowing for an orderly adjustment," he said. (Yonhap)