The Bank of Korea has brought interest rates down to yet another record low of 2.5 per cent as the pace of economic decline worsens and the country lurches inexorably towards its first recession in 10 years.

Korea’s darkening corporate prospects were brought into dramatic relief within moments of the central bank’s announcement: Ssangyong Motor chose the same moment to reveal that it had put itself into receivership to avert bankruptcy and save as many jobs as possible.

Economists said that even at unprecedented lows, Korean interest rates would probably continue to be cut as the extent of the downturn becomes clear: the central bank may even be tempted to bring rates down a further 150 basis points to the “psychologically startling” level of 1 per cent.

Analysts pointed to the the massive 42 per cent drop in monthly export numbers reported earlier this week by Taiwan as evidence of how badly Asia has been pounded by the global slump in consumption.

“A Korean recession in 2009 is now virtually unavoidable due to collapsing global demand, Korea’s high debt levels, elevated debt spreads damaging serviceability, and the related high dependence on not just external demand, but external financing,” said CLSA’s Shaun Cochran in a note to investors.,

The BoK’s half percentage point cut – a drop that took rates down to 2.5 per cent - was widely anticipated by the markets: many had even expected the move to be more aggressive at this stage, and responded by knocking more than 2 per cent of value off the main Kospi stock index.

The BoK governor, Lee Seong tae, warned of a sharp slowdown in consumption and an acute slowdown in exports – the lifeblood of the country’s economy. “GDP in the fourth quarter of last year appeared to have contracted significantly from the third quarter,” he said, adding the warning that growth and jobs would come under increasing threat as the year unfolded.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts