A South Korean state-run think tank said on Monday that monetary policy needed to be loosened in accordance with the slowing trend in inflation, which has weakened to a near four-year low that is well below the central bank's target.
"There is a need to adjust the degree of restrictiveness in monetary policy to prevent inflation from staying below the price stability target of 2% for a long period of time," the Korea Development Institute said in a report.
The institute often conducts research for the government but rarely gives specific policy suggestions. Market participants tend to regard policy advice from the think tank as the views of the finance ministry.
Inflation, which hit the slowest pace since early 2021 at 1.3% in October, has been on a slowing trend since 2023 amid high interest rates and is expected to continue weakening for at least some time, the think tank said.
South Korea's central bank last month cut interest rates for the first time since mid-2020 and flagged there was room to reduce further, giving some relief to households that have faced the highest borrowing costs in 16 years.
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