Bank of Korea cuts interest rate to new record low

SEOUL, South Korea - South Korea's central bank cut its key interest rate Thursday to a record low 2 percent to boost the country's fast-fading economy.

The Bank of Korea lowered the benchmark seven-day repurchase rate half a point from 2.5 percent at a regular policy meeting.

South Korea's export-driven economy has been hit by declines in global consumer demand. Exports plunged a record 32.8 percent in January.

"The pace of the domestic economic slowdown has accelerated," the bank's monetary policy committee said in a statement, emphasizing drops in consumer spending, investment and exports.

"There is considered to be a greatly deepened downside risk to economic growth, which has been heightened by the worsening worldwide slump and the likelihood of the credit crunch persisting," the committee said.

Thursday's cut marked the sixth time the central bank has slashed the benchmark rate since Oct. 9. A full percentage point reduction in December was its biggest cut ever.

The Bank of Korea, along with other monetary authorities, has aggressively cut rates in response to the global slump. South Korea is also suffering from declining consumer spending and fears about weakness in local banks.

Asia's fourth-largest economy shrank 3.4 percent in the fourth quarter of 2008 from the same period the year before as manufacturing and exports crumpled in the face of slumping global demand.

For all of 2008, South Korea's economy grew 2.5 percent, the worst performance since an annual contraction of 6.9 percent in 1998.

A growing number of economists are predicting Asia's fourth-largest economy will shrink in 2009, which would be the first contraction since 1998, when the country was battling the Asian financial crisis.

The drop in January exports was the steepest since South Korea began collecting and announcing monthly tallies of exports and imports in 1980, according to the Ministry of Knowledge Economy.

Moody's Investors Service said Monday it cut ratings on eight top South Korean banks because of their dependence on government support for foreign currency funding amid the global credit crunch.

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