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Export fall sees likely rate cut

SOUTH Korean exports suffered their biggest-ever drop in January, adding to market expectations that the central bank will cut interest rates by at least half a percentage point to shore up Asia's fourth-largest economy.

The country is home to leading producers of computer chips, mobile phones and ships and is the first big Asian exporter to report trade data each month, providing an early indication of the state of global demand.

A number of other export-reliant economies have also reported a collapse in trade in recent months, with the technology industry hit especially hard by worsening consumer demand in the United States and Europe.

The Ministry of Knowledge Economy data yesterday showed that exports in January fell 32.8 percent over a year earlier, worse than analysts had expected, while imports sagged 32.1 percent as consumers cut spending amid a deepening global recession.

The data reinforced investor expectations that South Korea's central bank will cut interest rates for the sixth time in four months at its February 12 policy meeting to help boost domestic demand and cushion cooling demand from abroad.

Rate cut

"Exports will inevitably fall by double-digit rates throughout the first half as the global economy is unlikely to show a fast recovery," said Kim Jae-eun, an economist at Hana Daetoo Securities. "With the export data and other recent indicators, the Bank of Korea is more likely to cut its key interest rate by 50 basis points, rather than 25."

The central bank has - since early October - more than halved its base rate to a record-low of 2.5 percent.

The government of President Lee Myung-bak, whose popularity has plunged since taking office about a year ago on growing discontent over its handling of the economy, has offered around US$100 billion worth of stimulus to lift domestic demand.

But there have been few indications yet that its efforts are reviving the economy, with central bank estimates showing late last month that the country's gross domestic product shrank the second-most on record in the fourth quarter of 2008.


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