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Bank Cites Low Rate Worry

Feb 18,2001
For every percentage point that interest rates fall, total interest income of the nation's investors falls by about 5.4 trillion won ($4.3 billion), or 1.3 percent of 1999's gross national income, the Bank of Korea said Sunday. The bank cut the overnight call rate by a quarter point earlier this month.

An official at the nation's central bank said that the drop in returns could slow consumption.

"Low interest rates are good news for companies," he said, "but we are worried that people will cut down on spending due to the drop in investment income."

The amount of deposits that are affected by interest rates in the market totals 543.6 trillion won, according to the bank. Savings deposits in banks, at 357 trillion won, account for most of that total, while bond funds operated by investment trust companies add up to 59.5 trillion won.

The other components that make up the rate-sensitive total are money market funds, at 39 trillion won; bonds and cash management accounts at investment banks, at 11 trillion won and cash in trusts, at 77 trillion won.



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