Go to Contents Go to Navigation

(EDITORIAL from Korea Times on March 18)

Editorials from Korean Dailies 06:57 March 18, 2020

Stay calm, but be bold
: Rate cut heralds unprecedented economic trouble

South Korea, like other countries, faces an uphill economic battle as the rapid spread of the novel coronavirus is dampening trade and consumer spending worldwide. The COVID-19 panic is jolting financial markets around the world.

For its part, it is time for Korea Inc. to consider all possibilities as the world economy may have entered a long, dark tunnel. There should be timely and effective measures to ride out this economic turmoil as the country has done well in dealing with the COVID-19 outbreak.

The Bank of Korea's (BOK) surprise rate cut, Monday, signified that growing downside risks are weighing on the country's economy and financial markets. The central bank slashed its key rate by half a percentage point to an all-time low of 0.75 percent, joining its global peers in their efforts to help minimize the fallout from the spread of COVID-19 and stabilize the financial market. This came hours after the Fed cut its own rate by a whopping 100 basis points to a target range of 0 to 0.25 percent.

We understand the BOK's rate cut reflected the perceptions that the rapid spread of the virus worldwide, especially in Europe and the United States, may pose an unprecedented challenge to the export-oriented Korean economy. Fortunately, the rest of the world also shares this sense of urgency. Korea should strengthen policy consultation with global institutions and other countries to overcome the crisis early.

The BOK may have to keep its key rate low for a considerable period of time to revive spending and support enterprises. This is an inevitable choice to stimulate the economy in times of crisis. However, the low rates will unavoidably inflate an asset bubble here considerably; it is like planting the seed of a new potential crisis which would be a lot more damaging to ordinary people, if it materializes. The administration should be fully prepared for this and carry out measures from a long-term perspective.

The rate reduction was a kind of shock therapy, but its effects will be limited as we see how U.S. stock markets have responded to the Fed's massive rate cut. It has rather worsened financial market jitters. A rash and radical move can give the wrong signal to market participants, so a cool-headed approach is needed more than ever for Korean policymakers in riding out this chaos.

President Moon Jae-in was right when he emphasized that timing is everything in carrying out economic measures in times of crisis during a Cabinet meeting, Tuesday. He said he will establish an Emergency Economic Council to make decisions and implement measures as swiftly as possible, describing the present state as an "unprecedented economic situation."

As always, a crisis provides a window of opportunity. The government should work with a sense of crisis, but it doesn't need to be pessimistic. Move boldly, but stay calm.

Send Feedback
How can we improve?
Thanks for your feedback!