BOK urges structural reforms to maintain 2 percent growth

Bank of Korea Gov. Rhee Chang-yong, center, speaks during a meeting with reporters in Marrakesh, Morocco, on Oct. 11, 2023. [JOINT PRESS CORPS]

Bank of Korea (BOK) Gov. Rhee Chang-yong stressed the need for Korea to maintain at least 2 percent growth in the long term through structural reform in the labor sector, and by utilizing female and immigrant workers amid the aging society.

"Around 2 percent is largely believed to be Korea's potential growth rate, according to the trend of the population structure, but the general view is that the rate will gradually fall due to the aging society," Rhee said in the annual meetings of the International Monetary Fund and the World Bank in Marrakesh, western Morocco, on Thursday.

"It would be overly pessimistic to assume that Korea's economic growth will stagnate like Japan," Rhee said, emphasizing that the nation would encounter sluggish growth only if it failed to take action.

Rhee pointed out that concerns over slowing economic growth should not be approached by increased expenditures but through structural reforms.

He added that Korea is expected to make steady progress toward its two percent target, although global oil prices will remain one of the key uncertainties for consumer prices.

"Korea's inflation is expected to reach the low 3 percent level by the end of this year, eventually heading towards the bank's target of 2 percent throughout 2024," Rhee said.

Korea's on-year consumer prices accelerated by the most in five months in September, rising 3.7 percent on-year, driven by higher oil costs and rising prices of some farm goods.

In August, consumer prices increased 3.4 percent on-year, accelerating from the 2.3 percent growth tallied in July.

"It is true that (September's) 3.7 percent growth exceeded our expectations," Rhee said. "Our primary concern revolves around the extent to which core inflation aligns with our expectations amid volatile oil prices."

The governor added the bank is also closely monitoring foreign exchange rates against the greenback in light of market speculation that the United States will continue its monetary tightening policy and pursue another interest rate hike.

"If the United States does implement another rate hike, there may be some price impacts, but these would align with market expectations," Rhee said.

Concerning the escalating Israel-Hamas conflict, Rhee said it is currently too early to assess its impact on the financial market.

BY JIN MIN-JI [jin.minji@joongang.co.kr]