Fed's bold move

Bank of Korea needs to take action to ease virus shock

The U.S. Federal Reserve delivered an unexpected cut to its key interest rate Tuesday. The half a percentage point reduction was a bold move, breaking away from previous "baby-steps" that used to lower the rate by a quarter of a point at a time. The Fed seems to have decided on the emergency measure ― reminiscent of the 2008 global financial crisis ― taking into account growing uncertainty for the U.S. and other major economies amid the new coronavirus shock.

The U.S. central bank had been expected to cut the rate at its Federal Open Market Committee meeting scheduled for March 17, but brought the move forward. The U.S. rate falling to 1.00 percent to 1.25 percent means it has now become equal to Korea's benchmark rate. Taking a "worst-case scenario" into account, the action by the Federal Reserve contrasts sharply with the Bank of Korea's reluctance to lower its rate for fear of creating adverse effects. Now is the time for Korea to take a far bolder monetary policy than ever before.

Other major economies are likely to follow the U.S. example. In a conference call held at Washington's request, finance ministers and central bank heads of G7 countries issued a statement indicating they would mobilize all policy tools to prevent a global economic downturn, signaling they would also reduce rates. The OECD has already lowered its growth forecast for the global economy from 2.9 percent to 2.4 percent. The move reflects its awareness that the COVID-19 panic is spreading beyond China to the rest of the world, disrupting global supply chains and tourism business, and throwing the financial market into turmoil.

Unfortunately, we can find no such sense of urgency in the BOK's recent decision to hold its rate steady, stressing only the possible downside effects of a rate cut. The Korean economy is in far worse shape than America's, and the virus outbreak is most serious here outside China. COVID-19 not only hurts the overall economy, but damages people's regular lives. Small businesses and the self-employed are finding it difficult to go on without suffering losses and going into debt. Procrastination at a moment like this is not caution. BOK needs to move swiftly. If necessary, the central bank should advance its Monetary Policy Board meeting to make a timely decision.