SEOUL: South Korea's central bank on Thursday, Dec 30 expressed concern about a plunge in the country's household savings to near the lowest among the developed economies from the highest levels in less than a generation.
The Organisation for Economic Co-operation and Develoment (OECD) sees the country's household savings rate reaching 3.2 percent this year, less than half of an average 6.8 percent seen for its members, the Bank of Korea said in a report.
It was a sharp drop in the rate when compared to as high as 24.4 percent in the early 1990s and the country set the fastest decline in the savings rate among OECD members over the same period, the central bank said.
"The falling household savings rate results in putting restrictions on the stable management of the macroeconomy," it said. "It will reduce the room for expanded consumer spending and increases volatility in economic growth."
The central bank blamed the falling savings on the fact that economic growth in recent years was led by less labour-intensive industries and that interest rates had stayed relatively low compared to the strength of the economy, leaving consumers with less incentive to keep money in the bank.
It said its calculations show the country's market interest rates have been roughly 1 percentage point below what is deemed to be a equilibrium level of interest rate.
South Korea's three-year treasury bonds yield 3.37 percent and three-year corporate bonds rated AA-minus yield 4.26 percent, compared with the country's annual inflation hovering around 3.3 percent and this year's economic growth topping 6 percent.
The central bank did not link the findings with its future interest rate policy, which market participants see as skewed for tightening throughout next year, but said future economic policy should put more effort on creating jobs at home. - Reuters
The Organisation for Economic Co-operation and Develoment (OECD) sees the country's household savings rate reaching 3.2 percent this year, less than half of an average 6.8 percent seen for its members, the Bank of Korea said in a report.
It was a sharp drop in the rate when compared to as high as 24.4 percent in the early 1990s and the country set the fastest decline in the savings rate among OECD members over the same period, the central bank said.
"The falling household savings rate results in putting restrictions on the stable management of the macroeconomy," it said. "It will reduce the room for expanded consumer spending and increases volatility in economic growth."
The central bank blamed the falling savings on the fact that economic growth in recent years was led by less labour-intensive industries and that interest rates had stayed relatively low compared to the strength of the economy, leaving consumers with less incentive to keep money in the bank.
It said its calculations show the country's market interest rates have been roughly 1 percentage point below what is deemed to be a equilibrium level of interest rate.
South Korea's three-year treasury bonds yield 3.37 percent and three-year corporate bonds rated AA-minus yield 4.26 percent, compared with the country's annual inflation hovering around 3.3 percent and this year's economic growth topping 6 percent.
The central bank did not link the findings with its future interest rate policy, which market participants see as skewed for tightening throughout next year, but said future economic policy should put more effort on creating jobs at home. - Reuters
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