January 09, 2009 |
|HONG KONG (MarketWatch) -- The Bank of Korea slashed interest rates by half a percentage point Friday, bringing its key rate to record low 2.5% in an effort to prop up an economy suffering from a collapse in exports.|
The rate cut adds to the four other reductions in the past three months, bringing the cumulative easing since October by the central bank to 275 basis points.
The rate cut was widely expected and inline with analysts polled by Dow Jones Newswires.
"The local economy is slowing very rapidly as export growth and domestic demand continues to decline," the central bank said in a statement Friday.
The central bank warned of more slowing in the months ahead as the U.S. and euro zone economies fall further into recession.
The rate cut follows data showing South Korean exports contracted 17.4% in December from a year earlier. Industrial production also was weaker in November, marking it fifth straight month of deceleration.
Speaking at a post-rate meeting press conference Friday Bank of Korea Governor Lee Seongtae said the economy is likely to have contracted in the final quarter of 2008 from the third.
Goldman Sachs forecasts the economy will grow 1.8% in 2009, well below the government's official forecast a 3% expansion.
"Given South Korean's close integration into the global economy, slow recovery in global demand will likely continue to weigh on overall economic activity," Goldman wrote in research note.
In a separate development Friday, South Korea's President Lee Myung-bak was cited in press reports as saying there was further room to cut interest rates, since the rate remains higher than that of many of South Korea's neighbors.
By Chris Oliver, MarketWatch