(EDITORIAL from Korea Times on Nov. 30)

Slowing growth
Questions rise over dovish monetary policy

The central bank slashed its outlook for this year's economic growth again Friday, to 2 percent ― the fourth downward revision this year.

This would be the lowest annual growth in a decade. The Bank of Korea (BOK) said slumping exports as well as weak domestic sales and corporate investment are weighing on Korea Inc.

Korea is not the only country which is under increasing downward pressure amid the global economic slowdown. But given the export-oriented economy is exposed to greater external risks, the country needs more proactive fiscal and monetary policies to limit the damage. Aggressive tax cuts and larger infrastructure spending should also be considered.

On the same day, the bank kept its policy rate frozen at 1.25 percent apparently to see how its previous rate cuts will affect the economy. It is good to put an emphasis on managing the situation with a cautious monetary stance, but it wouldn't have been strange for the bank to give a clear signal for an economic stimulus with an additional rate cut.

That is because the growth of consumer prices remains remarkably low. The BOK forecast consumer prices to grow 0.4 percent this year, and 1 percent in 2020, far short of its 2 percent target. In September, consumer prices even dipped to an all-time low of and contracted 0.4 percent year-on-year.

Announcing the rate decision, BOK Gov. Lee Ju-yeol said the freeze reflected the need to see how the macroeconomic situation will change in the weeks to come. But many analysts also agree that Korea needs pre-emptive steps to boost the economy as the fear of deflation has become more palpable here.

Over the past year, the BOK has revised down its economic growth forecast from 2.7 percent late last year to 2.6 percent in January, 2.5 percent in April, 2.2 percent in July and now 2 percent in November. Its outlook for next year's growth has also been slashed from 2.5 percent in July to 2.3 percent.

The biggest factor for the continuous downward revisions was slumping exports. The nation's exports have been shrinking for 11 consecutive months amid the prolonged trade war between the United States and China. The BOK cautiously predicted that exports will begin to rebound next year, but this is only based on the assumption that the U.S.-China trade dispute will be settled quickly. As Governor Lee explained Friday, only a complete resolution of their trade dispute can ensure a quick recovery of the Korean economy.

The government already proposed a record 513.5 trillion won ($423.7 billion) budget for 2020 to boost the slowing economy, a 9.3 percent increase from 2019. The expansionary fiscal policy can work better with a more aggressive monetary policy.

(END)