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S Korea rates at record low

SOUTH Korea's central bank slashed interest rates for the sixth time in four months to a record low of 2.0 percent and suggested further cuts as Asia's fourth-largest economy heads toward its first recession in 11 years.

Analysts expect the Bank of Korea to cut its base rate to around 1.5 percent before turning to other ways to supply the country with easy money, such as printing cash and buying up outstanding government bonds.

South Korean President Lee Myung-bak yesterday approved plans to offer about US$37 billion in credit guarantees to small and medium companies still suffering from a severe credit crunch despite the most aggressive round of interest rate cuts ever in the country.

"Further interest rate adjustments depend on how financial markets and other sectors respond to the recent rate policy," Bank of Korea Governor Lee Seong-tae said.

"Overall, we are open to further adjustments," Lee said.

The central bank cut the base rate by half a percentage point, as widely expected, bringing total reductions since early October to 3.25 percentage points.

Ten out of 17 analysts surveyed by Reuters had forecast a 50-basis-point cut in the base rate.

Bond prices initially rose at the central bank's promise for more rate reductions but closed lower on investor worries about increasing government bond sales to fund stimulus packages.


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