In a surprise move, South Korea's Central Bank slashed its policy rate by 25 basis points on Thursday, to a new record low of 1.25 percent for June, marking the first rate cut in 12 months, according to the Yonhap News Agency.
The Bank of Korea, BOK, had kept the key rate unchanged after sending it to the previous record low in four rate cuts between August 2014 and June 2015.
BOK Governor, Lee Ju-yeol, pointed out the need to support the economy, saying that the country's economic growth was expected to fall short of the bank's latest forecast.
"Economic growth in the first half is expected to be in line with our latest forecast for the first half released in April, which was a 2.9 percent year-on-year expansion. The problem is the second half. We believe downside risks will expand in the second half," he told a press briefing.
In its latest quarterly revision, the BOK had revised down its growth outlook for 2016 to 2.8 percent from the previous 3 percent. Another revision is due next month.
"Considering recent economic conditions at home and abroad, the growth trend is expected to fall short of the April revision," Lee said.
Thursday's decision came as a surprise to many as the South Korean Central Bank was widely expected to again extend its wait-and-see mode amid what it has called minor signs of economic improvement in Asia's fourth-largest economy.