Thursday, February 12, 2009

South Korea cuts key interest rate amid recession fears

South Korea's central bank Thursday cut its key interest rate by 50 basis points to a record low 2.0 percent as the nation struggles to avert its first recession for a decade.

The Bank of Korea reduced the benchmark seven-day repo rate at its monthly policy meeting. The rate has now been cut by 3.25 percentage points since last October.

The cut comes two days after new finance minister Yoon Jeung-Hyun warned that Asia's fourth largest economy will probably shrink two percent this year, the first annual contraction since the East Asian financial crisis in 1998.

Yoon, who also forecast job losses of around 200,000 this year, said the government would submit a supplementary budget to parliament by the end of March to try to stimulate domestic spending.

A series of recent grim economic figures shows the export-driven economy headed for recession as overseas demand for its ships, autos, microchips and electronics products dries up.

The economy shrank 5.6 percent quarter-on-quarter in the last three months of 2008, the largest contraction since the first quarter of 1998.

Exports in January dropped by a third year-on-year, the steepest decline since Seoul started announcing monthly tallies in 1980.

The economy shed more than 100,000 jobs in the year to January as the global economic downturn worsened, the biggest contraction for over five years.

The International Monetary Fund predicted that the economy will shrink four percent this year before rebounding in 2010.


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