South Korea cuts interest rate to aid exporters as weak yen helps Japan

The Bank of Korea joined central banks in Australia, Europe and India in cutting interest rates this month, as a weak yen dims the outlook for exports and record household debt weighs on consumption.

Bank governor Kim Choong-soo and his board lowered the benchmark seven-day repurchase rate to 2.5 per cent from 2.75 per cent, the central bank said yesterday.

The decision came after a four-to-three vote by the board against a cut last month, which showed the deepest division among the policymakers since 2006, and as data reveals a mixed picture of Asia's fourth largest economy.

Ruling New Frontier Party floor leader Lee Hahn-koo had urged a "more active role" for the bank, adding to pressure for a cut.

"What we're seeing is another round of global easing from Japan to Europe, and South Korea needs similar action," Lee Sang-jae, an economist at Hyundai Securities, said before the announcement. "The rate cut will help the nation's fight against a weak yen."

Lawmakers approved a 17.3 trillion won (HK$123 billion) extra budget this week to support the economy, and the central bank boosted special loans for small firms last month. The yen's 20 per cent slide against the US dollar over the past six months is aiding Japanese exporters of cars and electronics that compete with South Korean firms.