Bank of Korea cuts benchmark interest rate

South Korea's central bank cut the benchmark interest rate for the first time in 15 months yesterday, a dramatic shift from its hawkish policy stance that many analysts see as caving in to government pressure to shore up faltering growth.

The cut was widely predicted by economists, many of whom revised their rate calls in recent weeks after new Finance Minister Choi Kyung-hwan last month launched a series of stimulus measures to spark activity, and placed overt pressure on the central bank to ease policy.

The Bank of Korea's monetary policy committee cut its base rate by 25 basis points to 2.25 per cent, citing weak sentiment among consumers and companies.

"Would the bank have cut the rate if there wasn't as loud a chorus for monetary policy accommodation as it happened? Perhaps it would have, but it might have waited one or two more meetings to establish whether business sentiment can get past the Sewol effect," said Wellian Wiranto, economist at OCBC Bank in Singapore, referring to the controversy over the Bank of Korea's independence.

The Sewol ferry sank in April, killing more than 300 people in the country's worst maritime accident in two decades, darkening the public mood and hurting tourism-related industries.

Bank of Korea governor Lee Ju-yeol declined to respond to questions on whether he felt pressured from outside.