Pre-emptive step

Korea should go all-out to reinvigorate economy

The U.S. Fed has lowered its benchmark interest rate by 0.25 percentage points for the first time in 10 years and eight months. It also has decided to end the "quantitative tightening" ― retrieving money from the market ― two months ahead of schedule. The Fed's rate cut had been anticipated and kept pace with its South Korean counterpart, which made a similar move last month. However, we feel envious of America's monetary policy, as the Fed took a pre-emptive step to prepare for difficult times.

Experts compared the latest rate cut to "insurance" against downside risks. The U.S. economy is currently not bad, but the U.S. central bank made its move to prepare for the possible slowing of the economy. Federal Reserve Chairman Jerome Powell also said, "Clearly, it has the aspect of insurance," citing the worldwide economic slowing and uncertainties in global trade. The U.S. economy is maintaining an unprecedented expansion, its unemployment rate is the lowest in 50 years and the New York Stock Exchange continues to hit record highs.

Korea's situation can hardly be more different. The nation's exports in July fell 11 percent from a year ago, recording year-to-year drops for eighth months in a row. Unless external conditions improve such as by the ending of the U.S.-China trade war and Japan's export restrictions against Korea, it will be difficult to reverse the trend. Samsung Electronics' operating profit in the second quarter plunged 55.6 percent from a year earlier. The largest company in Korea saw its two pillars ― semiconductors and smartphones ― fall into the doldrums at the same time. Moody's rating agency has downgraded SK hynix's corporate standing from "stable" to "negative."

The U.S. rate cut has opened the way for major central banks, including the European Central Bank and the Bank of Japan, to increase their money supply. We can't help but wonder how low their benchmark interest rates will fall. All of this shows how most countries are competing with one another for their economic revival and expansion. U.S. President Donald Trump even criticized the Fed for not lowering its rate more boldly by 0.5 percentage points. Korea can ill afford to spare any efforts to reinvigorate its economy.