South Korea’s real interest rate remained in negative territory for the 25th straight month in November, data showed Monday, raising concerns the trend will continue into next year amid a possible global economic downturn.
The real interest rate, or the benchmark interest rate minus the consumer inflation rate, stood at minus 1 percent in November, according to the data compiled by the Bank of Korea.
The November figure extended the minus real interest rate period to its longest streak since the BOK began compiling related data in May 1999.
It also raised the number of months real rates have stayed at zero or below to 40 since President Lee Myung-bak took office. Real rates stayed above zero for only five months during the Lee administration.
The central bank froze the benchmark seven-day repo rate at 3.25 percent for the fifth straight month in November, citing downside growth risks such as the eurozone sovereign debt crisis.
The country’s consumer inflation grew 4.2 percent on-year last month, fueled by a rise in the cost of manufacturer goods, process foods and public utilities, according to government data.
Taking into account that the BOK again froze the key interest rate in December and the grim outlooks for global and local economies next year, market watchers voiced worries that the longest-ever minus real rate period may continue further.
Earlier this month, the BOK cut its 2012 growth forecast for the South Korean economy, Asia’s fourth-largest, to 3.7 percent from an earlier estimate of 4.6 percent as Europe’s debt crisis and a global slowdown are feared to hurt exports. The 2012 growth projection is the slowest growth since a 0.3 percent expansion tallied in 2009.
Experts also raised concerns that the low rate may weigh down on households. A minus real interest rate tends to ease household’s debt burden but pose negative risks to consumer inflation.
“A minus real rate may add upside pressure to inflation. The low rate, meanwhile, may also prompt more household lending amid a fall in interest burden,” said Chung Young-sik, the chief researcher of the Samsung Economic Research Institute.
South Korea’s household debt reached 741.2 trillion won ($640.3 billion) as of November, according to the data by the Financial Services Commission, the country’s financial watchdog. (Yonhap News)