[Editorial] Succumb to pressure?

When the Bank of Korea kept its benchmark rate unchanged a month ago, Governor Kim Choong-soo said a rate cut was not needed because the Korean economy was showing signs of recovery. He was holding out under mounting pressure for a rate cut from the administration.

On Thursday, however, the central bank slashed 25 basis points off the seven-day repurchase rate, from 2.75 percent to 2.5 percent ― the first rate cut in seven months. The rate cut came as a surprise, given that Kim sent out a signal a week ago that no rate cut was forthcoming. He said the bank did all it could when it lowered the rate last July and October.

Was it growing pressure from the administration or the latest spate of rate cuts in the world that forced the central bank to change course?

The administration, whose 17.3 trillion won supplementary budget passed on Tuesday, had been pressuring the central bank to lower the rate, arguing that a rate cut and the additional spending would produce synergy in spurring growth. It advanced Japan’s quantitative easing as another reason for a rate cut, saying a weak yen was badly hurting the Korean economy.

When the central bank’s Monetary Policy Commission was deliberating over the nation’s economic conditions ahead of Thursday’s decision, the European Central Bank, Australia and several other countries had already cut their benchmark rates in the previous week.

In his post-decision news briefing, Governor Kim made no mention of political pressure. As if to deny the rate cut was made under pressure, he said only one of the seven commission members made up the minority opinion.

Instead, he said the central bank found it necessary to support the administration and the legislature that had already been exerting efforts for recovery. He said the central bank wanted to help boost growth beyond its 2013 estimate of 2.6 percent.

Now of great concern to the financial market is a question regarding whether or not the central bank has started to protect the Korean economy from the weak yen’s assault. He did not mention Japan’s quantitative easing. But he said it was desirable to change interest rates in the way advanced nations change them.

Now that the central bank has accommodated the administration’s rate cut request, the administration will be held solely responsible for producing the synergy of the rate cut and the additional fiscal spending in generating growth.