South Korean think tank recommends gradual rate hikes due to economic risks

SEOUL: South Korea’s monetary tightening should come at a gradual pace due to the risk of economic contraction, the government’s top research agency said after lowering its GDP growth forecast.

In its biannual economic outlook report, the Korea Development Institute (KDI) said, “In order to keep inflation expectations stable, it is necessary to maintain a tightening policy stance for the time being, but the pace of rate hikes also takes into account the possibility of an economic slowdown. should be put in,” he said. Released Thursday.

A state-run think tank said interest rates need to be raised at a gradual pace given the risk of a rapidly contracting economy, adding that conditions in South Korea do not require as sharp rate hikes as in the United States and the eurozone.

Asia’s fourth largest economy is expected to remain in slowdown mode next year, with annual gross domestic product (GDP) growth expected to slow to 1.8%, below its estimated potential growth of around 2%, according to KDI. . The forecast six months ago was at a pace of 2.3%.

Growth forecasts for this year have also been lowered slightly to 2.7% from 2.8% previously, and annual consumer inflation forecasts for 2022 and 2023 have been raised to 5.1% and 3.2% from 4.2% and 2.2% respectively.