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(EDITORIAL from Korea Times on March 29)

All News 07:09 March 29, 2021

Guarded optimism
: Efforts needed to cope with possible inflation, rate hikes

The International Monetary Fund (IMF) has projected South Korea's economic growth rate for the year will reach 3.6 percent, up 0.5 percentage points from the 3.1 percent it foresaw in January. The IMF's revised outlook for the nation's economy, which came in its annual report released Friday, is the most optimistic among forecasts by major domestic and global institutes.

Earlier, the Organization for Economic Cooperation and Development (OECD) raised its outlook by 0.5 percentage points to 3.3 percent growth. Leading domestic organizations like state-run Korea Development Institute and central Bank of Korea (BOK) came with 3.1 and 3.0 percent rates for the nation, respectively.

Global investment banks like Goldman Sachs even project the Korean economy will grow up to 3.9 percent. All these and other facts boost the expectation toward rapid recovery of the national economy. The prospects come mainly due to projected economic rebounds in major industrial powers coupled with Seoul's stimulus fiscal policies.

Consumer sentiment has also been fast recovering to reach the same level as seen before the COVID-19 pandemic. According to the BOK's Friday report on consumer trends, the Composite Consumer Sentiment Index (CCSI) stood at 100.5 in March, an increase of 3.1 points from a month earlier. This means that consumer index rose for three consecutive months and surpassed 100 for the first time since the pandemic began. Also, this represents that more people see the future optimistically.

A positive outlook for the national economy is welcome. Yet we have still a long way to go toward a full recovery from the coronavirus pandemic. We should pay attention to the possible adverse impact the prospective economic recovery will bring about including inflation and interest rate hike, among others. Fiscal expansion to stimulate the sagging economy will inevitably step up inflationary pressure and increase commodity prices.

There have already been signs popping up. For instance, Second Vice Finance Minister Kim Yong-beom cautioned against the possible spike in prices of food, beverages and processed products, citing the need for closer checks on prices of relevant products during a meeting of policy review last week.

BOK Governor Lee Ju-yeol ruled out the possibility of continued inflationary pressure despite the temporary spike. Yet, Lee's statement should be taken to underline it is not yet time to employ monetary policy to cope with the possible inflation. Lee might have attempted to curb the possible increase in interest rate amid signs of growing inflation. In fact, Lee said the BOK will more attentively watch the possible pressures on commodity prices increase as the central bank cannot rule out the possibility.

The prospective inflation will inevitably necessitate interest rate hikes. The BOK's CCSI survey showed an increasing number of consumers expected the interest rate will go up. It is time for the government, businesses and individuals to prepare for the possibility of inflation and interest rate hikes to minimize the potential fallout of such events and moderate the inflationary phase.


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