By Kim Yon-se
Staff Reporter


Korea cut its benchmark short-term interest rate by 25 basis points to a record low of 3.25 percent Thursday, seven hours after the United States hiked the rate by an identical margin to 2 percent.

The rate cut surprised analysts who predicted the freeze out of concern for inflationary pressures and the possible outflow of capital from Korea and also signals the central bank’s resolve to boost the struggling economy.

Bank of Korea (BOK) Governor Park Seung cited the falling oil prices and the Korean won’s steep appreciation versus the U.S. dollar as key factors for trimming the short-term interest rate.

``Stimulating the economy is more important than curbing consumer prices (as the won-dollar rate is steadily falling),’’ the governor told reporters yesterday after he and his six monetary policy committee colleagues _ the group which sets interest rate policy in Korea, decided to trim the rate.

He predicted that economic downturn is expected to continue till the first half of next year. Private consumption, corporate capital spending and construction investment all remain in the doldrums, with export growth slowing, he said.

According to the central bank, retail sales, a barometer of domestic consumption, declined 1.7 percent in September from a year ago, with corporate capital spending falling 0.7 percent.

But Park said Asia’s third largest economy will grow by around 5 percent this year.

Banks are likely to lower lending and deposit rates following the central bank’s rate cut. It is expected that the deposit rate will hit an all-time low down around the 3 percent range.

The U.S. Federal Reserve increased the target for the federal funds rate to 2 percent from 1.75 percent, claiming the economy showed impressive job growth over the past three months.

kys@koreatimes.co.kr