BUSINESS

S. Korea’s policy rate is high, considering inflation: OECD

By Bae Hyunjung
  • Published : Nov 18, 2019 - 17:17
  • Updated : Nov 18, 2019 - 17:17

South Korea’s actual key interest rate, in relative term to its inflation, is one of the highest among peer economies, data showed Monday, raising speculations that the country may carry out additional rate cuts.

According to data compiled by the Organization for Economic Cooperation and Development and cited by experts here, Asia’s fourth-largest economy had the third highest “actual” base rate in October, next to Turkey and Mexico.



The official policy rate here currently stands at a record low 1.25 percent, after two rate cuts by the Bank of Korea this year -- in July and last month, respectively.

There have been calls, however, on further rate cuts, as the country prolonged its slow growth pace and low inflation.

“Companies tend to consider actual interest rates when making investment decisions,” said Cho Young-moo, researcher at LG Economic Research Institute.

“High inflation reduces the relative value of money and consequently lessens the burden of loans.”

The increase rate of Korea’s consumer prices, which has been stalled below the 2 percent target for years, logged a first-ever negative growth in September.

Core inflation, which excludes volatile food and energy prices, climbed 0.6 percent in October from a year earlier.

Considering these sluggish price factors, the country’s actual base rate comes to 0.65 percent, while most OECD member states saw their corresponding figure in the minus range.

Even Iceland, where the nominal base rate is 3.25 percent, had a real base rate of 0.15 percent due to its core inflation which gained 3.1 percent on-year, data showed.

Meanwhile, Korea’s real base rate in June 2016 -- when the BOK slashed the key rate to 1.25 percent for the first time -- stood at negative 0.85 percent as core inflation then gained 2.1 percent on-year.

By Bae Hyun-jung (tellme@heraldcorp.com)


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