Banks are trapped in a prolonged low-interest trend that has resulted in time deposit rates of less than 3 percent after KB Kookmin Bank and Woori Bank cut their rates earlier this week, market observers said yesterday.

KB Kookmin Bank lowered its annual interest for a popular time deposit product to 2.97 percent from 3.05 percent on Monday, according to industry insiders. Woori Bank trimmed its highest-rate time deposit to 2.9 percent, down 0.1 percentage point, the same day.

Market observers said major banks cut the interest in tandem with dwindling yields on treasuries after the government recently lowered its outlook for 2013 economic growth rate to 2.3 percent from 3 percent.

Data by the Bank of Korea shows average interest rates on new deposits at banks stood at 2.94 percent in February, down 0.06 percentage point from January.

“This is the first time that interest for banks’ new deposits has been below 3 percent since May 2010, when the average interest was 2.89 percent,” said a central bank official.

Some say the average rate may go down further if the central bank’s monetary policy committee lowers its key rate for the first time in five months.

“The central bank is likely to slash the key rate by 0.25 percentage point in April’s monetary policy meeting and chances are good that it could make additional cuts in the future in light of the new government’s strong determination to stimulate the economy,” said Jeong Yong-taek, an analyst at KTB Investment and Securities.

After the Park administration announced last week that it would come up with a supplementary budget of more than 12 trillion won ($10.7 billion) this year to stimulate the economy, the yield on three-year treasuries began to fall.

Yesterday, the yield was 2.47 percent, down from 2.49 percent Monday.

Lee Jeong-joon, an analyst at HMC Investment and Securities also said a key rate cut is unavoidable.

“Given that the country’s economic growth outlook for this year was lowered, there is a great potential that the key rate could go down by a total of 0.5 percentage point this year,” Lee said. “Even if the central bank’s monetary policy committee freezes the key rate this month, committee members would likely express their positions that the rate cut could happen in the future.”


By Kim Mi-ju [mijukim@joongang.co.kr]