BOK Cuts Interest Rate to Record Low

The Bank of Korea cut the benchmark interest rate by another quarter percentage point to a record-low 1.25 percent on Thursday, a day after the government announced massive downsizing plans for the shipbuilding industry.

The BOK had been criticized for being overly defensive, and it is rare for the central bank to respond so quickly to government measures to bolster the sagging economy.

"The monetary policy committee decided to lower the rate this month as price pressures remain modest and because the pace of future growth will likely be weaker than expected," BOK Governor Lee Ju-yeol told reporters.

The central bank decided on a different path from the U.S. Fed, which raised its interest rate in December. That could prompt foreign investors to take their money out of Korea's financial markets.

Yet the BOK has been given some leeway in its rate decision, due to weak U.S. employment figures, which led to speculation that the Fed will refrain from further rate hikes for the time being.

Banks are expected to lower deposit interest rates, which may be good news for debtors but is bad news for pensioners who live off their interest.

Analysts said debtors must use this opportunity to reduce their debt load. Total household loans amounted to a whopping W1,223.7 trillion in the first quarter, up 1.7 percent on-quarter and way faster than the 0.8 percent rise in household incomes. (US$1=W1,158).