Macroeconomic developments and policies affecting monetary conditions
- Authors:
- OECD
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Pages
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43–60
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DOI
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10.1787/eco_surveys-kor-2007-4-en
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Abstract
Economic growth slowed to less than a 4% annual rate in the second half of 2006, largely due to weak private consumption and a decline in housing construction. The economy is projected to pick up gradually, with growth of about 4¼ per cent in 2007. Korea should pursue a flexible exchange rate policy by limiting intervention in foreign exchange markets. The liberalisation of controls on capital outflows should aim at improving long-run efficiency rather than moderating upward pressure on the won in the short run. The Bank of Korea should focus on achieving its new medium-term target for overall CPI inflation and avoid using monetary policy as a tool to stabilise real estate prices in some parts of the capital region, as further hikes in the short-term interest rate would have a negative impact on the increasingly indebted household and small and medium-sized enterprise sectors.
