SEOUL: South Korea's central bank on Friday cut its key interest rate by 0.5 percentage points, the fifth cut in three months, in a move to bolster the slumping economy.

The Bank of Korea slashed its seven-day repo rate by 50 basis points to 2.5 per cent, the bank said following a monthly policy meeting.

It has now cut the key rate by 275 basis points since October 9 in an attempt to stimulate the domestic economy amid the global downturn.

"The local economy is slowing fast as domestic and overseas demand are contracting faster than expected," the central bank said in a statement.

"Downside risks to the economy are also great due to the continuing instability in the financial market," it said.

The bank then hinted it could further cut the rate. "From now on, the monetary policy will be focused on improving liquidity and preventing a severe economic contraction."

"Economic fundamentals are not in good shape. Faltering exports and sluggish domestic demand warranted a half-a-percentage-point cut," Kim Jae-eun, an economist at Hana Daetoo Securities Co., told Yonhap news agency.

"The bank is expected to continue its monetary easing to 2 per cent until the first half," he said.

- AFP/yb