SEOUL (Reuters) -South Korea’s state-run think tank said on Tuesday there was no huge need for interest rate cuts, as it revised up a forecast for economic growth next year.
The remarks came as minutes of last month’s board meeting of the Bank of Korea showed that most members had expressed caution about further policy easing while they kept interest rates unchanged.
“Considering that fiscal policy will be expansionary at a time when economic sluggishness is easing, we assess that the need for economic stimulus through monetary policy is not big,” the Korea Development Institute (KDI) said.
Monetary policy needed to be maintained similarly to the current stance for the time being, it added, although gradually normalising the fiscal position was desirable, in order to prevent huge fiscal deficits.
KDI often conducts research for the government but rarely offers specific policy suggestions, which market participants tend to see as expressing the views of the finance ministry.
President Lee Jae Myung’s liberal administration plans to boost government budget spending for next year by the steepest pace in four years, following a supplementary budget this year with a cash handout scheme to spur domestic demand.
Asia’s fourth-largest economy grew in the third quarter by the fastest pace in 1-1/2 years, beating market expectations, helped by strong exports and government stimulus policies.
The economy is expected to grow 1.8% next year, after expanding 0.9% this year, the KDI said in revised economic projections, up from its August forecasts of 1.6% and 0.8%, respectively.
(Reporting by Jihoon Lee; Editing by Clarence Fernandez)
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