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With economies worldwide enduring a period of stagnation, the Korean government and the Bank of Korea have determined to save the domestic economy with massive cash injections. The central bank slashed rates by its highest ever margin, while the government said it has revised next year¡¯s budget in order to boost fiscal spending on pump-priming measures. The government plans to reduce taxes, including income and real estate transfer taxes, as previously proposed.
The BOK held an emergency meeting of its monetary policy committee on Monday to slash its key interest rate (the benchmark interest rate charged on loans between banks) by 0.75 percentage point from 5.00 percent to 4.25 percent. This deviates from its norm of cutting the rate by a maximum quarter percentage point at a time. The BOK had already cut the rate by 0.25 percentage points on Oct. 9. This latest rate cut, which comes less than a month later, now totals a full percentage-point drop.
BOK Governor Lee Seong-tae explained the surprise move as an attempt to counter the rapid slowing of domestic consumption, uncertainties surrounding the future of exports and lingering jitters in financial markets. Lee also suggested further rate cuts are possible.
The BOK also lowered interest rates on loans to commercial banks by 0.75 percentage points, from 3.25 percent to 2.5 percent, in order to expand low-interest loans to small and mid-sized businesses suffering from the credit crunch. The central bank will also buy W5 trillion - W10 trillion worth of bank bonds in order to alleviate the shortage, while recommending they lower interest rates on mortgage loans and other debts.
(englishnews@chosun.com )
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