S Korea Central bank cuts rate to record low as expected

SEOUL - South Korea's central bank slashed interest rates by half a percentage point to a record low of 2 percent, as expected, the sixth cut in four months aimed at preventing the global crisis tipping the country into recession.

By (Reuters)

Published: Thu 12 Feb 2009, 10:51 AM

Last updated: Thu 2 Apr 2015, 3:55 AM

The Bank of Korea has now cut interest rates by a total of 3.25 percentage points since early October, including an unprecedented 1 percentage point reduction in December.

A media official from the central bank announced the latest cut on Thursday without elaborating. Governor Lee Seong-tae is due to hold a news conference shortly.

"Today's rate decision was a defensive measure against a rapidly weakening economy," said June Park, an economist at Woori Investment & Securities.

"We are nearly at the bottom at this point. The central bank may cut the rate by another 50 basis points, but that's probably about it, as the real effect of the rate cut is limited at this stage."

March treasury bond futures were at 112.06 by 0118 GMT, up 20 ticks on the day, rebounding from earlier losses, while the South Korean won eased to 1,397 per dollar from around 1,396 before the rate cut.

The stock market's benchmark KOSPI was little changed at around 1,180 points after the rate decision.

South Korea's economy shrank a seasonally adjusted 5.6 percent in the fourth quarter of 2008 from the previous three months, suffering its second-biggest economic contraction on record.

The finance ministry this week cut its GDP growth forecast for 2009 to a fall of 2 percent from a rise of 3 percent, the first official acknowledgement that the economy would contract this year. The IMF has projected a 4 percent contraction.

Ten of 17 analysts in a Reuters poll had predicted a 50 basis-point cut. The others forecast a 25 basis-point reduction.

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