South Korea cuts rates, automaker seeks protection

By Seo Eun-kyung and Cheon Jong-woo

SEOUL (Reuters) - The Bank of Korea cut interest rates to a new low and suggested more cuts to help fend off recession, while a local auto maker filed for court receivership to become South Korea's first high-profile victim of the global crisis.

The Bank of Korea cut its policy rate by half a percentage point to a record-low 2.5 percent on Friday, marking the fifth cut in three months aimed at helping shield Asia's fourth-largest economy from the global downturn.

The move, which brought the total reductions since early October to 2.75 percentage points, came in line with forecasts in a Reuters survey but bond prices tumbled as many investors had bet on a deeper cut.

"I think the Bank of Korea was concerned about the uncertain future and didn't want to use all its options in one go," said Kong Dong-rak, a fixed-income analyst at Hana Daetoo Securities.

Governor Lee Seong-tae said rate policy would continue to aim to support the economy, which he said faced the risk of sliding further, prompting analysts to bet on more rate reductions ahead.

"(The Bank of Korea) will manage its policy toward warding off a sharp slowdown in economic activity and contributing to the stability in financial markets," Lee told reporters, adding that the economy was rapidly slowing.

But he suggested the room for further cuts was narrowing, by pointing out that the new policy rate was already lower than the inflation expectations.

President Lee Myung-bak said this year's 3 percent economic growth target may prove unattainable and there was room for lower rates after rounds of steep rate cuts elsewhere, including this week's reductions in Britain and Taiwan.