Published : Oct. 24, 2014 - 17:11
Lee Ju-yeol, governor of the Bank of Korea, urged companies to increase their investments, saying that the country’s economy needs another boost to regain its growth momentum.
“Investments are not as active as expected, despite the unprecedented interest rate cuts,” Lee said Friday in a breakfast meeting with local conglomerate chiefs.
“We did have concerns that another rate cut may cause problems such as a rise in household debt, but in the end voted for it out of necessity for stoking Korea’s economic growth momentum.”
Last week, the central bank lowered the base rate by a quarter percentage point to a record low of 2 percent. The measure came only two months after the initial interest rate cut in August, when the BOK slashed the rate for the first time in 13 months to 2.25 percent from 2.5 percent.
“(South Korea’s growth rate) may be favorable, compared to other countries, but it is not yet stable, and (to revive the momentum) the top priority is to improve the general investment sentiment (of companies),” Lee said.
Lee Ju-yeol
Japanese companies here have lately seen an increase in profits, due to the weakness of the yen, but their money is not being reinvested, he added.
Last year, Korea’s investment to gross domestic product ratio was 8 percent, a visible fall from 12 percent in the early 2000s.
Also, earlier this month, the BOK cut down its growth outlook for this year to 3.5 percent from 3.8 percent, and that for next year to 3.9 percent from 4 percent.
The list of participants at the meeting included Kim Shin, president of Samsung Construction & Trading, Park Gwang-sik, senior vice president of Hyundai Motor, Lee Young-hoon, POSCO vice president, and Chi Chang-hoon, president of Korean Air.
The company executives, in response to the BOK governor’s plea, demanded further deregulation to create a flexible labor market that meets the global standards.
They also claimed that a stable currency is crucial in order for companies to keep up their price competitiveness in the overseas market.
Meanwhile, the central bank said the South Korean economy expanded 0.9 percent in the third quarter this year from three months earlier, as consumption showed signs of a recovery from a pullback in the aftermath of the Sewol disaster in April.
The country’s third-quarter economic growth rate accelerated from the 0.5 percent on-quarter growth in the April-June period this year, according to the Bank of Korea.
From a year earlier, Asia’s fourth-largest economy expanded 3.2 percent in the July-September period, slowing from 3.5 percent on-year growth in the previous quarter.
On an annualized basis, it marks the second straight quarter of decline. The third-quarter figure also marks the slowest on-year growth in more than a year.
By Bae Hyun-jung (tellme@heraldcorp.com)