S. Korea: Banks' lending rates down in May amid monetary easing cycle

Seoul, June 30 (IANS) Banks' loan rates fell for the sixth straight month in May, data showed on Monday, as the central bank has been in a monetary easing cycle.

The average lending rate of banks applied to new loans came to 4.17 percent last month, down 0.2 percentage point from a month earlier, according to the data from the Bank of Korea (BOK).

The rate has been on a constant decline since December, reports Yonhap news agency.

The rate that banks pay for deposits also fell 0.08 percentage point to 2.63 percent, the eighth consecutive monthly decline.

The spread on banks' lending and deposit rates, accordingly, increased to 1.54 percentage points in May from the previous month's 1.48 percentage points, the data showed.

The BOK began its monetary easing cycle in October, marking its first policy shift since August 2021, and has cut its benchmark interest rate four times by a total of 1 percentage point through May in an effort to prop up economic growth amid sluggish domestic demand.

The BOK is scheduled to hold its next rate-setting meeting on July 10.

The South Korean central bank on Monday lifted restrictions on local institutions investing in foreign currency-denominated bonds issued for domestic use, known as kimchi bonds, in an effort to improve foreign exchange liquidity, officials said.

Under the new measure, foreign exchange institutions, including foreign exchange banks, securities firms and insurance companies, are allowed to invest in kimchi bonds without limitations starting Monday, according to the Bank of Korea (BOK).

The restriction was introduced in 2011 to prevent debt issuance intended to circumvent currency loan regulations and to curb excessive domestic investment in foreign currency debt.

With a growing imbalance in foreign exchange (FX) supply and demand, however, there have been calls to ease the regulations.

"We expect the measure to help alleviate the imbalance in foreign exchange supply and demand by improving foreign currency liquidity and easing downward pressure on the Korean won," a BOK official said.

—IANS

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