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Bank of Korea slashes key interest rate

Bank of Korea slashes key interest rate

South Korea's central bank slashed its key interest rate Monday in a bid to boost the economy and stock market amid the global financial crisis. The country's president said the government would cut taxes and boost public spending.
The Bank of Korea said it lowered its benchmark seven-day repurchase rate from 5 percent to 4.25 percent at a special meeting. It was the largest-ever cut under the central bank's current policy set-up, said spokesman Kim Seong.
The bank said in a statement that a big cut was needed "to guard securely against the possibility of a sharp contraction of real economic activity" citing "large swings of the exchange rate and stock prices and the partial seizing up of the credit markets" due to the impact of global financial turmoil.
The decision came as South Korean markets suffer due to the world financial turmoil. The country's benchmark stock index lost one-fifth of its value last week, its worst weekly performance on record. The won currency has also fallen sharply.
The Korea Composite Stock Price Index rose as much as 2.9 percent after the decision was announced, though buying momentum weakened and the index slipped into negative territory, declining 0.7 percent to 932.30 after about 2 1/2 hours of trading.
The South Korean won also fell against the U.S. dollar, trading at 1441.50, or down 1.4 percent from Friday. The won has fallen about 35 percent this year.
Monday's decision came at a rare interim policy meeting and follows a cut of a quarter percentage point at a regular policy meeting earlier this month.
It was the second such unscheduled meeting for the bank since its current policy was established in 1998. The previous one came after the Sept. 11, 2001 terror attacks in the United States when the bank cut its key rate by half a percentage point.
The bank announced Friday that South Korean economic growth slowed in the third quarter to 3.9 percent, as construction contracted and the global slowdown hit manufacturing and exports. It was the worst performance by Asia's fourth-largest economy since the second quarter of 2005, when it expanded 3.4 percent.
The slowdown comes as the global financial crisis sends shock waves through world markets and threatens to drag major economies into recession.
Separately, South Korean President Lee Myung-bak told the National Assembly that his government would increase public spending and reduce taxes to boost the economy.
Lee also called on South Koreans to "pull together their strength and wisdom again," referring to national efforts to overcome the 1997-98 Asian economic crisis that devastated the country.
Lee, however, said that South Korea's current financial difficulties were not comparable to what the country suffered a decade ago.
"There is no foreign exchange crisis now in South Korea," Lee said, citing the country's $240 billion of foreign currency reserves and declining global oil and raw material prices.
"What matters is rather the psychological aspect," he added. "The most dreadful foe we have to guard against is overreacting and being engulfed in fear that exceeds reality."
On Friday, South Korea's benchmark stock index plunged 10.6 percent to close below 1,000 points for the first time in more than three years. The drop pushed the Kospi to its worst weekly fall _ 20.5 percent _ since records began being kept in 1987.
Lee, who held an emergency meeting Sunday of his top officials, returned home Saturday from China, where he discussed ways to deal with the global financial meltdown with Asian and European leaders.
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Associated Press Writer Hyung-jin Kim and APTN producer Hyun-ah Kim contributed to this report.


Updated : 2020-12-04 16:51 GMT+08:00