Policymaker argues for bigger interest payments on required reserves

SEOUL, Jan. 20 (Yonhap) -- One policymaker at the Bank of Korea (BOK) argued that
the BOK needs to pay local banks higher interest on their required reserves at
the central bank in an effort to help ease the credit crunch, according to its
minutes released Tuesday.
On Dec. 3, the BOK decided to make a one-off interest payment worth about 500
billion won (US$363.5 million) on the reserves to local lenders for the first
time since December 1986. Currently, the reserve requirement ratio on money
market deposit accounts and demand deposits stands at 7 percent.
"It is needed to double the amount of interest payments to around 1 trillion won
in a bid to boost banks' lending capacity and ease the credit crunch," said Choi
Do-soung, a member of the BOK's monetary policy committee.
The move came as South Korean banks have been increasingly reluctant to extend
loans, particularly to smaller firms, amid the slowing economy and credit crunch.
In January, the BOK cut its key interest rate by half a percentage point to a
record low of 2.5 percent in a move to prop up the slowing economy. The central
bank has trimmed the rate by a combined 2.75 percentage points since October.
sooyeon@yna.co.kr
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