Based on the already announced Interest Rate Liberalization Plan, this study proposes a phase-2 interest rate liberalization plan that takes into account the current economic conditions and circumstances. The purpose is to contribute to the efforts being made to foster industries and transparent and fair competition. As Korea has opened up its economy to the outside world, the liberalization of capital is proceeding at a rapid pace, and Korea needs to enhance the market functions of such price variables as interest rates and exchange rates in order to ensure increasing efficiency of its economic management. As part of its efforts to improve the autonomy of the financial sector, the Korean government has allowed financial companies to make their own personnel and internal management decisions, while also introducing floating interest rates phase by phase. The first-phase project had little impact due to the limited nature of its cope of application. The floating rates applied in this case, however, did not grow significantly even after liberalization and contributed to the growing stability on the financial market.
In the second phase, we need to liberalize the interest rates on almost all loans, and bring the rates on monetary and public bonds upon issuance up to a more realistic standard, ahead of the third- and fourth-phase schedules, so as to enhance the efficiency of floating interest rates. These floating rates should come into effect on November 1st. As this second-phase project of interest rate liberalization is expected to wield significant influence on the real economy and the financial market alike, the following changes should be made in order to ensure its early success and consolidation. First, financial institutions need to actively embrace the liberalization plan and implement the floating rates effectively. Second, the rates across the market should be stabilized over time to allow financial institutions to make free use of them without any fears. In addition, financial institutions and corporations should enhance the predictability of their capital management, while the government improves the relevant institutions and practices to ensure indirect regulation of monetary control. Financial supervision should also be reinforced to prevent excessive interest competition or monopolistic practices from arising.
제2단계 금리자유화 시행방안(Phase-2 liberalization of interest rates)
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|
|Holding||BOK; KDI School|