This study seeks to provide the grounds upon which the Korean government can more actively pursue the liberalization of the interest rate. The Korean government’s efforts to liberalize the interest rate in the 1980s has helped restore price stability, while guaranteeing a real interest rate by bringing the public interest rate on par with its market counterpart and reducing the gap between public and private interest rates. These measures, however, have been limited to the liberalization of a handful of financial products only. The conditions for the liberalization of the interest rate are ripe in Korea. The interest rate should enable businesses to adjust the prices of their goods and services more flexibly in response to the perceived distortion in the flow of capital, and it should be liberalized to pave the ground for the advancement of Korea’s financial industry.
The government needs to correct financial distortions by liberalizing the interest rate, and it needs to promote the reform of the financial industry accordingly. The government needs to acknowledge that the liberalization of the interest rate and of the financial industry will be an inevitable part of opening up Korea’s foreign exchange and capital markets to the outside world. Until now, the floating interest rate has been applied only to select areas and products. The government needs to expand the scope of application, boldly lowering the interest rates on loans while taking more caution with adjusting the interest rates on savings. The government also needs to enact a wide range of other related measures that will be required to ensure the uninterrupted flow of capital and its efficient distribution.
금리자유화추진방향(Liberalization of the interest rate)
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|