WASHINGTON: South Korea should pursue "a carefully calibrated exit" from economic stimulus policies in the face of strong growth this year, the International Monetary Fund said on Wednesday, Sept 1.
The IMF -- which again revised the growth forecast of Asia's fourth-biggest economy upward, to 6.1 percent from 5.75 percent in a July report -- said expansion was increasingly led by private sector demand and was at or near full growth potential.
"The outlook is nevertheless subject to downside risks related to a global economic weakening and heightened global financial strains, especially in advanced economies," it said. Growth would ease to 4.5 percent in 2011, it added.
In view of the worsening external environment, "a carefully calibrated exit from supportive macroeconomic policies is appropriate," the IMF Board of Directors said in its annual report.
"This comprises a measured fiscal withdrawal in 2011, a gradual normalization of policy rates given the current accommodative monetary stance, and a further unwinding of support to the financial sector and (small and medium-sized enterprises)," it said.
Seoul authorities should retain exchange rate flexibility as a key element of the exit strategy, but remain ready to adjust their policy stance if new risks to growth materialize, the IMF said.
Although the central Bank of Korea raised the policy interest rate to 2.25 percent in July from record-low 2 percent in its first tightening since the 2007-2008 financial crisis, monetary policy remained "highly accommodative," the IMF said.
Inflation remained contained despite the robust recovery and strong capital inflows, the fund said. -'' Reuters
The IMF -- which again revised the growth forecast of Asia's fourth-biggest economy upward, to 6.1 percent from 5.75 percent in a July report -- said expansion was increasingly led by private sector demand and was at or near full growth potential.
"The outlook is nevertheless subject to downside risks related to a global economic weakening and heightened global financial strains, especially in advanced economies," it said. Growth would ease to 4.5 percent in 2011, it added.
In view of the worsening external environment, "a carefully calibrated exit from supportive macroeconomic policies is appropriate," the IMF Board of Directors said in its annual report.
"This comprises a measured fiscal withdrawal in 2011, a gradual normalization of policy rates given the current accommodative monetary stance, and a further unwinding of support to the financial sector and (small and medium-sized enterprises)," it said.
Seoul authorities should retain exchange rate flexibility as a key element of the exit strategy, but remain ready to adjust their policy stance if new risks to growth materialize, the IMF said.
Although the central Bank of Korea raised the policy interest rate to 2.25 percent in July from record-low 2 percent in its first tightening since the 2007-2008 financial crisis, monetary policy remained "highly accommodative," the IMF said.
Inflation remained contained despite the robust recovery and strong capital inflows, the fund said. -'' Reuters
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