Week 8 - Wednesday (News Assignment)

Recently, low-income families debt holdings stood low whereas income growth remained unchanged. So, on May 9th, the Bank of Korea cut the seven-day repo rate by a quarter percentage to 2.5 percent. As part of government's stimulus drive, the cut aimed to ease low-income families debt burdens. The rate reduction will gift the lowest 20 percent income group with yearly savings of 16,000 won in interest-payment costs. However, their interest income can decline by an average of 27,000 won annually.

            "The calculation was made based on the premise that their savings and financial debt move in tandem with changes in interest rates." However, their calculation can take another turn for worse as it gives households incentives to borrow more money while easing the burden of repaying interest.

            The economic downturn led to a situation where the low-income families hold savings worth an average of 10.87 million won and financial debt of 63.2 million won on average. A rate reduction is effective only for some low-income families with high debt, but not for the lowest income group in general. The calculation must have been made with those with financial debt among the lowest 20 percent income bracket, in which the rate cut could bring such people a profit of around 14,000 won annually. Thus, the better way to fix the problem would be to take into account of all the low income families, not just ones with debt crisis. The ones with a lot of debt should be treated separately, that way more people can benefit from the policy. The new policy will take time and money, but eventually it will lead to better future for Korea.

Bibliography:
"Rate Cut May Not Help Ease Poor Families' Debt Burdens-The Korea Herald." Rate Cut May Not Help Ease Poor Families' Debt Burdens-The Korea Herald. N.p., n.d. Web. 13 May 2013.