A rate cut is not the answerThe Bank of Korea (BOK) has lowered the benchmark rate to 1.25 percent from 1.50 percent, an additional drop since July and a return to the lowest-ever rate two years ago. The central bank’s decision on Wednesday signifies an alarming decline in the Korean economy. The BOK is not alone in dragging down the rate. Financial institutions at home and abroad also are joining forces to ratchet down their prospects for Korea’s growth. Some even forecast that Korea can hardly achieve a 2 percent growth this year. Under such dire circumstances, even inflation has turned to the negative territory, fueling the fear of deflation, an unprecedented phenomenon in Korea.
The problem is the lending rate has not yet hit the bottom. Market analysts say another cut will be unavoidable. We cannot rule out the possibility of the rate falling into the zero percent range. Our economy faces dark clouds in internal and external conditions. Despite a recent small deal between the United States and China in a trade war, Korea faces a plethora of challenges, including the ongoing Seoul-Tokyo conflict over trade.
Financial experts predict that a 0.25 percentage point cut in the benchmark rate can hardly revive the Korean economy. Despite the government’s willingness to spend more, its fiscal affordability is questionable. You cannot attribute a slump in consumption and investment to higher interest rate alone.
The government should be held accountable for such situations as it continues to deepen economic uncertainty through its experimental “income-led growth” policy rather than effectively respond to worsening conditions at home and abroad. As a result, an increasing number of our businessmen are fleeing the country to find a better opportunity after being frustrated by a rigid 52-hour workweek, rapid hikes in the minimum wage, and anti-business sentiment. If the government tries to fix these problems by lowering interest rate, it can lead to speculation in the real estate market instead of boosting consumption and investment.
Lee Ho-seung, a senior Blue House secretary for economic affairs, patted himself on the back, saying our economy is doing fine. But if he attributes our economic trouble to external forces, he is contrasting with President Moon’s perception. The government must exert all of its effort to revive the economy, starting with sending clear signals that it will stop anti-market policies as soon as possible.
JoongAngIlbo, Oct. 17, Page 34