[EDITORIALS]More than a rate cut is neededThe governor of the Bank of Korea, Park Seung, yesterday called a meeting of the Monetary Board and decided to lower the call rate by 0.25 point. The decision to lower the rate is meaningful in that the central bank has started to take action, although belated, reflecting the reality of our economy.
There are many who claim that the effect of lower rates will not be so great. They don’t think that consumption and investment have shrunk because of high interest rates or lack of money in the market. There are even people who worry that the economy will be caught in the trap of the liquidity crisis in which the circulation of money slows down no matter how low the rates get, as was the case with Japan in the mid-1990s.
But the decision to lower rates has the symbolic meaning that the government, which has only talked of optimism and has disregarded the economic reality, has recognized the economic fiasco we are in at last. With the lowering of the rates, we hope that the likelihood of defaulted household loans and property-backed loans will be reduced.
Park Seung explained the background of the decision: “The central bank predicts that the economy will not get better next year.” This shows that the government also sees the seriousness of the current economic condition.
Lee Hun-jai, deputy prime minister for finance and economy, yesterday said, “Considering difficult economic circumstances nowadays, the government will strengthen its role in finance.” He implied that next year’s budget will be enlarged to boost the economy.
As there are concerns that next year’s growth rate will drop to 3 percent if we maintain the current path, we think that the government made the right decision to cut the rate. But we can’t overcome current hardship only with lower rates and a bigger budget.
Businesses refrain from investing and consumers hesitate to open their purses not because they lack money. It is because of the social atmosphere in which businessmen and rich people are treated as if they are criminals.
If we fail to revive the entrepreneurial spirit with a firm belief in the market economy, it is difficult to expect that the economy will revive just by lowering rates and increasing the currency volume. The current people in power must show the public that they have adopted a pragmatic attitude in order to save the economy.