South Korea’s central bank slashed the key interest rate for the first time in seven months on Thursday in a bid to lend support to the government’s drive to stimulate the local economy.
In a split decision, Bank of Korea (BOK) Gov. Kim Choong-soo and his six fellow policymakers lowered the benchmark seven-day repo rate by a quarter percentage point to a two-year low of 2.5% for May, according to (Yonhap) news agency.
The bank froze the key rate for the sixth straight month in April after lowering the borrowing costs in July and October.
The decision surprised the market as most analysts predicted a rate freeze for May. The bond futures market shot up following the announcement.
The rate reduction came as the government is ramping up efforts to bolster the economic growth and other central banks are rushing to take aggressive monetary easing.
The governor said that the rate cut will help maximize the impact of the government’s planned execution of an extra budget worth 17.3 trillion won (US$15.9 billion).