Real Interest Rates Fall to below 1 Pct

Article excerpt

The interest rates on one-year time deposits have fallen or will fall below 6 percent per annum at most domestic commercial banks, inflicting those living on interest income.

Housing & Commercial Bank (H&CB) already lowered its interest rate to 5.9 percent on benchmark one-year time deposits. Shinhan and Hana cut their interest rates on the same deposits by 0.2 perdntage points to 5.8 percent Monday.

Seoul Bank has lowered its rate by 0.3 percentage points to 5.9 percent from today and Chohung will slash it by 0.2 percentage points to 5.8 percent Monday.

Kookmin, Hanvit, KorAm and Korea Exchange Bank (KEB) are also considering lowering the rates to comete with their rivals.

Consequently, people living on interest income, the elderly in particular, and salaried men with idle money will have to closely look into products to find high interest products.

Furthermore, the real rates are below 1 percent when this year's inflation rate and a 16.5 percent tax on interest income are considered. Inflation stood at 4.2 percent during the first two months of the year from a year earlier and is expected to grow further.

A Shinhan Bank official said, ``Banks can hardly dispose of flooding deposits as they are unable to find borrowers in both the corporate and household sector.''

Volatile stock and bond markets are cited as another reason for banks to pull down their deposit interest rates, he added.

One-year time deposit rates at banks are playing the role of key rate in the first and secondary banking community, indicating that other financial institutions, such as merchant banks, mutual savings and finance companies and insurers will be obliged to follow suit although the margin will be smaller. …