BOK cuts key rate to record low 3 pct

(ATTN: CHANGES headline; UPDATES with details from para 3; ADDS quotes of economist
in para 5)
By Kim Soo-yeon
SEOUL, Dec. 11 (Yonhap) -- South Korea's central bank lowered its key interest
rate by a record one percentage point on Thursday, the fourth rate cut in two
months, in an effort to bolster the slowing economy.
In a monthly policy meeting, the Bank of Korea (BOK) slashed the benchmark
seven-day repo rate to a record low of 3 percent. The previous lowest level was
3.25 percent set in early November 2004.
Before Thursday's move, the BOK had cut the rate by a combined 1.25 percentage
points to 4 percent since early October in a bid to keep global financial turmoil
from impacting the real economy.
The BOK's decision was not in line with a forecast made by 17 economists polled
by Yonhap Infomax, the financial news arm of Yonhap News Agency. A total of nine
experts predicted a half-a-percentage point cut, while the remainder expected a
quarter percentage point reduction.
"The South Korean economy is slowing at a faster-than-expected pace as exports
falter amid weak domestic demand," the BOK said in a statement. "The growth of
the local economy is expected to sharply fall as domestic and overseas demand
will likely deteriorate."
The move follows the government's unveiling of a string of measures aimed at
jumpstarting the sagging economy, which include additional fiscal spending and
tax cuts.
"A full percentage point rate cut came as a surprise. The central bank seemed to
act preemptively as economic growth for next year is widely expected to sharply
slow," said Kim Jae-eun, an economist at Hana Daetoo Securities Co. "The BOK is
expected to continue its monetary easing until the first quarter of next year."
The South Korean economy grew 0.5 percent in the third quarter from three months
earlier, the weakest growth in four years, as exports fell and domestic demand
stagnated.
Asia's fourth-largest economy is expected to further lose steam next year as
exports, which account for about 60 percent of the economy, have already shown
signs of slowing. The Korean economy grew 5 percent last year.
South Korean overseas shipments declined 18.3 percent on-year in November, the
biggest drop in seven years, as the global economic downturn dealt a blow to
emerging markets like China, the main destination for Korean goods.
International bodies and global investment banks have laid out a gloomy outlook
for the Korean economy next year. The International Monetary Fund cut its growth
prediction for the Korean economy to 2 percent in 2009 from 3.5 percent. UBS AG
forecast that Korea's economy will contract 3 percent next year. Despite the
predictions, the government has set its growth target at 4 percent.
Meanwhile, the country's consumer prices grew 4.5 percent on-year in November,
the slowest growth in seven months, as oil and raw material prices declined.
However, prices still breached the BOK's target range of 2.5-3.5 percent for the
12th straight month.
Experts said the BOK is expected to reduce borrowing costs until next year to
cushion the impact of the global recession on the export-driven local economy.
"Downside risk to economic growth is increasing, which also calls for aggressive
economic stimulus packages from the government," said Im No-jung, an economist at
Solomon Investment & Securities Co. "The BOK is expected to cut the rate down the
road in a concerted effort to boost the economy."
sooyeon@yna.co.kr
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