An International Monetary Fund (IMF) team has projected that South Korea's inflation rate will moderate to the government's target of 2% by the end of 2024. The announcement came on Wednesday, following a two-week visit by the IMF team to South Korea for an annual meeting with officials. The country's consumer prices had increased at a faster-than-expected pace in August, at 3.4%, due to higher prices of agricultural and manufactured goods.
Despite the temporary rebound in August, Harald Finger, Korea missions chief at the Washington-based organization, stated that inflation is likely to continue moderating. In a separate virtual meeting with reporters, Finger emphasized the importance of South Korea maintaining a restrictive monetary policy stance for the time being.
Alongside this, he noted that due to significant fiscal expansion during the pandemic and a debt-to-GDP ratio still on an upward trajectory, fiscal policy should continue to normalize, supporting monetary policy in containing inflation. Last month, South Korea's finance ministry proposed a budget of 656.9 trillion won ($493 billion) for 2024, up 2.8% from this year's budget of 638.7 trillion won.
South Korea's central bank has held its key interest rate steady at 3.5% for the fifth straight time as it weighs a slowdown in growth amid moderating inflation. Despite this restrictive budget, Finger expressed confidence that this policy will help limit further buildup of public debt while containing inflation.
The IMF maintained its 1.4% on-year growth projection for the South Korean economy. Growth is expected to improve in the second half of the year as the semiconductor sector gradually recovers, reaching 1.4% for the year and strengthening further over the medium term.
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