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Lower Rate Means Boosting Economy, Says Former Central Banker on Korea Economy Revival

By February 5, 2016 at 6:56 am
A South Korean banker holds Korean won bank notes at the Korea Exchange bank on December 11, 2012 in Seoul, South Korea. (Photo : Chung Sung-Jun/Getty Images)

The country's snail growth prompted Kang Myung-hun to suggest a lower rate so as to show that the policy makers are boosting the country's economy the best they can.

Kang said the lowering of the rates should be done this month to address the country's economic slowdown. In a report by Bloomberg, the former member of the monetary policy committee from 2008-2012 said the low exports in January badly hurt the economy.

"The contraction in the global economy seems to be worsening this year, and the fall in January exports shows what damage it is doing to the Korean economy," he said. "No policy can be perfect, but we need to think about priorities -- reviving growth --- rather than side effects like household debt."

His suggestion came after the Bank of Japan implemented a negative interest rate on Jan. 29, causing huge concerns over Korean won's appreciation against the Japanese yen. Further, it can hurt exports as the country is relying majorly on the export sector.

In January, Korea's export climbs down to 18.5 percent, the biggest since 2009, which is linked to China and global economic slowdown. The country's economy remained sustainable due to their consumption support, but gained further suffering when the fatal MERS syndrome emerged.

During the first half of last year, the country's tourism quickly declined even after several attempts to promote their destinations.

"South Korea is an economy that is reliant on exports," and thus a decline means fewer jobs, less income and less consumption," Kang explained. "A cut can be a preemptive action to show policy makers are doing all they can."

Bank of Korea officials has been holding a 1.5 percent rate since June. Its three-year bond resulted in a lower benchmark on Wednesday. However, the central bank and the government see a 3 percent improvement this year.

"In this low-growth, low-inflation period, the BOK shouldn't be thinking of a specific level as the floor of the interest rate," Kang said.

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