Is the Low Interest Rate Era Coming to an End?

As the domestic market’s interest rate continues to rise, financial institutions such as banks and insurance companies are raising their deposit interest rates. Meanwhile, following Australia, England has also raised its interest rate, showing signs of bringing down the international low interest rate era which the world had seen in the past couple of years.

Rising domestic market interest rates: The Bank of Korea had frozen the call rate for the past four months, but the market interest rate still seems to show a steep rise.

Yesterday, the interest rate for the 3-year maturing Treasury bond in the bond market was an annualized 4.77 percent. Compared to the 3.98 percent rate in November 2, it increased by 0.79 percent. In proportion to the rising market interest rate, banks and financial institutions are continuously raising their interest rates.

Woori Bank started raising the interest rate of fixed time deposits such as the “Woori Leisure and Sports Love fixed time deposit” by 0.2 percent.

Before this, the Industrial Bank of Korea raised the interest rates of their installment savings deposit and fixed time deposits from 0.1-0.2 percent by its time period on November 3. Korea First Bank also raised its interest rate for the one-year installment savings deposit from 4.2 percent to 4.3 percent.

Life insurance companies are raising interest rates by adjusting the official interest of the floating rate insurances upwards.

Samsung Life Insurance raised the official interest rate of the whole life insurance and annuity insurance from 4.7 percent to 5.0 percent as of this month, and Kyobo Life Insurance and Korealife Insurance raised their interest rates from 4.8 percent to 5.0 percent.

As insurance companies take into consideration the weighted average of the market interest rate and raise the official interest rate, which is adjusted monthly, more insurance payments will be supplied to the clients and will bring the same effect as banks raising their deposit rate.

Chung Han-young, a research member of the Korea Institute of Finance, said, “Following Australia and England, it seems that the U.S. will also raise its interest rate during the first quarter (January~March) of next year. As domestic interest rates tends to rise, people who live on the interest will receive profit from it, but people who are taking loans will have an extremely heavy burden on the interest cost.”

Experts judge that the recent rise in the interest rate is accepted as a sign of economic recovery and stock market recovery, but the overheated real estate market will shrink relatively.

Global low interest rate era which has just started to go down: Bank of England was the first of the four worldwide central banks to raise the standard interest rate to 3.75 percent, a 0.25 percent raise, on November 6. Prior to this, the Reserve Bank of Australia raised their standard interest rate from 4.75 percent to 5 percent, a 0.25 percent raise, on November 5.

The urgent concern is whether the U.S. will raise their interest rate or not.

Alan Greenspan, chairman of the Federal Reserve System (FRB), said through a satellite speech on the meeting held by National Association of Securities Dealers (NASD) on November 6, “FRB is concerned that, while the economy is recovering quickly, the inflation is too low,” showing signs that for the time being, the low interest rate will not change.

New York Times and Wall Street Journal pointed out that Alan Greenspan hadn’t used the expression “considerable time” for maintaining the low interest rate, hinting that there are possibilities of raising the interest rate.