By Yoon Ja-young
Staff Reporter
The real interest rate, which accounts for inflation, fell to zero as consumer prices rose sharply. It means there is in fact nothing to gain by depositing money in bank accounts.
According to the Bank of Korea, the average interest rate given to new deposits by banks in June recorded an annual 5.5 percent, which is equal to the consumer price rise announced by the National Statistical Office. It reflects that the real interest rate, which one gets by deducting inflation from the nominal interest rate, will be zero.
There had been signs that the real interest rate was heading to below zero. While the nominal interest rate hovered between 4.97 percent and 6.01 percent during the past year, inflation soared to 5.9 percent from 2.4 percent. Despite the inflation, the central bank couldn't raise the rate due to concern over the slowdown of the economy. Consequently, the real interest rate reached zero for the first time since 2005 January.
It is perplexing people regarding where they should leave their money ― when considering the 15.4 percent tax rate levied on interest income, bank deposits are essentially incurring losses. They have few other attractive options as the stock market is going through a bearish period following the global stock market crash, and as the real estate prices are suppressed by the collapse of a bubble under the still valid regulations enacted by the former President Roh Moo-hyun administration.
Some are saying that the interest rate should be raised since those who live on interest from bank savings will be cutting spending, further slowing down the economy. Others, however, oppose an interest rate hike, saying that it is time to focus on economic recovery following the stabilization of global oil prices.