July 12th, 2012
10:03 AM GMT
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(CNN) – South Korea on Thursday cut its benchmark interest rate for the first time in more than three years, fueling concerns that the global economic downturn is taking its toll on one of Asia's largest economies.

Seoul's move followed similar cuts in Europe, China and Brazil last week.

Why did China slash interest rate?

After lowering its rate by 25 basis point down to 3%, the Bank of Korea pointed to a slower-than-expected growth rate in trade and domestic consumption.

"The monetary policy committee hopes the rate cut will help the Korean economy return to a long-term growth trend," the bank's governor, Kim Kim Choong, told a press conference.

But the decision came as a surprise to the market as only one out of 15 analysts predicted a rate cut for July in a survey by Yonhap Infomax, the financial arm of Yonhap News Agency.

The central bank was also slammed for not acting quickly enough in its policy response to market conditions.

'The previous level of 3.25% was not even a neutral level of the key rate," Lee Sung-kwon, a senior economist at Shinhan Investment Corp., said before the decision, in quotes carried by The Korea Times.

"The BOK cannot evade criticism that it has been behind the curve in raising the rate so far, even if this month's rate cut aimed to bolster the economy."

South Korea's move will undoubtedly have been influenced by China's decision to cut its interest rates for the second time in less than a month last week in an effort to jump-start its slowing economy.

The world's second largest economy has endured some disappointing economic data recently, including a dip in manufacturing performance in June.

Beijing, in a survey of purchasing managers, noted that there was a sharp drop in new export orders as weakness in other parts of the world affected its economy, CNNMoney reported.

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