S.Korea announces record interest rate cut

SEOUL, Oct 27 - South Korea's central bank on Monday delivered its biggest ever interest rate cut and promised other measures to calm the panic that has been driving down financial markets and rapidly eroding economic growth.

With economic growth at a four-year low and weakening, President Lee Myung-bak told parliament the government would boost spending and cut taxes next year and stood ready to inject liquidity into the system until markets calm.

The Monetary Policy Committee slashed the base rate by 75 basis points to 4.25 percent <KROCRT=ECI> at a rare unscheduled meeting as fears grow that Asia's fourth largest economy is buckling under the strain of the global financial turmoil.

Following are a selection of remarks by Bank of Korea Governor Lee Seong-tae during his news conference, translated and compiled by Reuters:

RATE POLICY

"Today's bigger-than-usual rate cut is aimed at helping prevent a sharp slowdown in domestic demand and the overall economy."

"On future monetary policy, we will actively consider financial market turmoil and an economy slowdown, although we will also take a look at stable prices in the mid-and-long term."

"We will also consider changes in inflationary pressures in setting future policy."

"Domestic demand is shrinking quickly. Exports, which have been healthy so far, are not expected to remain strong as economies in bigger countries are likely to slow down."

"It was necessary for the BOK to take bold action as households and SMEs have been feeling more debt burden amid sluggish growth in jobs and sales."

ECONOMIC GROWTH

"The recent financial market turmoil, if it lasts a long time, will cause further deterioration in domestic demand, which has already been sluggish. That will push down the economy much more, I think."

INFLATION

"The won has fallen and we still have inflation risk, but the situation in inflation also favours an interest rate cut."

FINANCIAL MARKETS, BANKS BONDS

"On the foreign exchange market, the government and the BOK have injected dollars by participating in swap markets and carried out smoothing operations. We will keep up those efforts in the future."

"We have not decided how much liquidity we would inject with bond purchases, but we are considering 5-10 trillion won."

"It does not mean that the BOK would buy bank bonds because no one wants to buy them in the market. We want those bonds to circulate in the markets, while we inject liquidity within limited timeframes."

WON

"The foreign exchange rate is much more influenced by other factors than interest rates. The won's rates are decided by how quickly foreigners take their investments back (to their countries)."