IMF chief warns against premature monetary easing

Kristalina Georgieva, managing director of the International Monetary Fund, speaks during an event held at Ewha Womans University in Seoul on Friday. (Yonhap)

International Monetary Fund Managing Director Kristalina Georgieva said it is too early for central banks to go easy on inflation control despite signs of recovery.

“We have seen through history that at this very last moment of controlling inflation, some countries prematurely declare victory,” the IMF chief said during a press conference held in Seoul Friday.

Georgieva’s remarks come on the heels of the US Federal Reserve’s monetary policy meeting Wednesday, during which it hinted that it might be nearing the end of its tightening campaign, raising the hope of interest cuts next year.

“Inflation is easing, but it will show in each country at different stages. The central banks must act accordingly to their situations,” she emphasized.

The IMF chief said that the South Korean economy has shown a fair recovery thanks to a policy response she characterized as “effective."

“We are aware the Bank of Korea has been operating its monetary tightening firmly and strictly since last year, while the financial authorities pursue fiscal normalization,” she said. “Such collaboration between the monetary and fiscal authorities accelerates our response to price control and eases the burden on the economic growth.”

And this partnership between the two financial bodies must continue, she underscored.

Georgieva projected that the South Korean economy would see its growth rate increase from this year’s 1.4 percent to 2.2 percent next year, with inflation anticipated to cool down to the 2 percent level in 2024.

“We expect that monetary policy rate stays above neutral for the time being and believe the Bank of Korea will closely monitor developments of various situations to decide its policies on the way,” she said.

Georgieva confirmed that the South Korean government and the IMF were “on the same page” in terms of their policy directions through her meeting with BOK Gov. Rhee Chang-yong and Finance Minister Choo Kyung-ho on Thursday.

While sharing the IMF’s positive outlook on the global economic growth – with the rate expected to be around 3 percent both this year and in 2024 – she called for continued efforts from the central banks of individual countries for a sustainable recovery.

“The recovery is sluggish and happening disproportionately, with polarization deepening around the world. The core inflation rate is still quite high. The central banks still have much to do in order to further stabilize various price indices, which will be pivotal to the daily livelihoods of the people,” she said.

By Choi Ji-won(jwc@heraldcorp.com)