S. Korea's monetary policy must maintain accommodative stance: regional think-tank

SEJONG -- South Korea must maintain its accommodative policy stance as it seeks to prop up a slowing economy amid muted inflationary pressure, a regional think-tank said Monday.

"Given ample fiscal space, the fiscal stance should remain expansionary in the near term with more spending allocated toward restructuring the economy," the ASEAN+3 Macroeconomic Research Office (AMRO) said in a report.

"At the same time, monetary policy should be accommodative in view of moderating economic growth and muted inflationary pressure," it said.

The region covers the 10-member Association of Southeast Asian Nations and its three Northeast Asian dialogue partners -- South Korea, China and Japan.

The Singapore-based organization added that South Korea should employ expansionary fiscal and monetary policies to support the economy as it is buffeted by strong external headwinds.

"Overall macroprudential policy mix should remain tight to guard against the buildup of financial imbalances, although certain measures could be refined to be more targeted to allow more credit expansion in supporting the economy," it said.

South Korea's economy grew 2 percent last year, its slowest growth in a decade. The nation's finance ministry expects the economy to grow 2.4 percent this year.

Hit by a trade war between the United States and China, South Korea's exports fell 10.3 percent on-year in 2019 to $542.4 billion.

Concerns are growing over South Korea's export performance down the road amid the new coronavirus crisis.

It is widely feared that the outbreak and spread of the COVID-19 virus, which is believed to have originated in the Chinese city of Wuhan, will dampen China's economic growth in the first quarter.

China is South Korea's top trading partner, with slightly over 25 percent of its overseas shipments going to the world's second-largest economy after the United States.

The AMRO report, which was based on statistics from November last year, made no mention of the economic impact of the coronavirus. (Yonhap)