IMF advises BOK to maintain gradual policy normalisation

The Bank of Korea (BOK) should continue to normalise monetary policy gradually due to high uncertainty, despite inflation being around its two per cent target, as per a statement published by the International Monetary Fund (IMF) on Wednesday.

“The authorities’ envisaged fiscal consolidation and spending priorities in the 2025 budget proposal is appropriate, but more ambitious consolidation will be needed to create the space to meet significant long-term spending pressures.”

Targeted policies to address real estate-related financial risks are encouraged, and authorities should monitor vulnerabilities and be prepared to take preemptive action. Additional prudential measures may be considered as monetary policy normalises further.

The country’s growth is forecasted to be 2.2 per cent in 2024, driven by robust semiconductor exports but dampened by sluggish domestic demand recovery. Real GDP is expected to grow 2.0 per cent in 2025 as the economy aligns with its potential growth.

Inflation decreased to 1.3 per cent in October 2024 and is anticipated to stay near the two per cent target in 2025. Despite the positive outlook, uncertainties persist, and risks lean towards the downside.

Attribution: The International Monetary Fund report

Subediting: M. S. Salama