Korea (South)

(South) Korea had a long period of more or less effective monetary targeting, after an initial period of exchange rate fixing with very limited monetary policy; monetary targeting became increasingly difficult and it switched to inflation targeting in 1998.

Years Targets and attainment Classification
1974-8 currency fixed to USD within narrow margins set by central bank, devaluation late 1974; official concerns include growth, balance of payments and prices; monetary policy operated mainly through reserve requirements and credit ceilings; monetary growth affected by fiscal deficits; monetary targets (M1) from 1976 overshot each year; banks highly regulated augmented exchange rate fix AERF
1979-87 1980 currency devalued, peg switched to basket, more depreciation; then currency managed with reference to basket with eye to competitiveness and balance of payments, more flexibly from 1985; converging monetary targets (mostly point targets, M2 from 1980), sometimes revised during year, met 2 years and near-met 2 years out of 9; more emphasis on lowering inflation; some gradual financial deregulation, with movement towards indirect monetary instruments; government’s stakes in banks sold 1982 loose converging monetary targeting LCMT
1988-1995 monetary targets (3% or 4% range) met 7 years out of 9; exchange rate managed, with increasing flexibility from 1990; further financial liberalisation with growing use of OMOs as main monetary instrument full monetary targeting FMT
1996-7 1996 monetary target overshot, switch to new aggregates then monetary targeting downgraded loosely structured discretion LSD
1998-2014 formal narrow i00nflation targets from 1998 met 13 years, near-met 4 years, out of 17; exchange rate now floating, with occasional interventions; M3 targeted in secondary role till 2000, then monitored; monetary policy operated via call money market rate; improvements in central bank independence, transparency and IT arrangements full inflation targeting FIT

Selected IMF references: RED 1974 p52; RED 1977 pp10, 12; RED 1982 pp23-4, 68; RED 1984 Supplement 1; RED 1985 pp29-30; RED 1986 pp26-7, 33; RED 1988 pp31-2, 38; RED 1991 13-18, 21-3; RED 1993 pp19-20; RED August 1994 p27; BP 1995 chs II, III; SI 2001 pp18-19; SR 2001 pp33,35; SR 2006 p10; SR 2007 pp8-10; SR 2008 pp14, 20; SR 2011 pp14-18.

Additional sources: Bank of Korea (2012); Kim and Kim (2009); Kim and Park (2006).

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