South Korea's central bank in a surprise move yesterday cut its key interest rate for this month by 0.25 percentage points to 3.25 percent in a bid to boost a sluggish economy.
The Bank of Korea has been under pressure for a rate cut to prop up an economy struggling for traction after it left it unchanged at 3.5 percent for a second straight month in October amid fears of inflation.
"The economy is in the doldrums with consumer spending, investment and construction all remaining dull," Bank of Korea governor Park Seung said.
"With export growth also slowing down, the overall economy is in a downturn."
He cited weak domestic demand as the main reason for the rate cut as concerns about inflation ease in light of a strong won, which dampens the impact of costly imports, especially oil, whose price has also fallen recently.
"Forex rates and oil price movements have eased concerns about inflation," Park said.
"The slump in domestic demand is so deep that people are suffering. We've decided to cut the rate to counter these problems."
The decision yesterday is all the more striking as it comes against a backdrop of generally higher or rising interest rates elsewhere.
South Korea, which ranks as the world's 11th-largest economy, has been dogged by feeble domestic demand amid high oil prices since a consumer credit bubble burst early last year.
The central bank has said it aims to keep growth above 5.0 percent to create more jobs but economists at home and abroad have warned the country could fall short of that target this year.