Seoul - South Korea's central bank on Friday lowered its key interest rate to 2.5 per cent, the fifth cut in three months, to help kick-start the country's economy.

The Bank of Korea's monetary policy committee lowered the benchmark seven-day repurchase rate by 0.5 per cent, its lowest level on record.

"Domestic economic activity is slackening at a rapid pace," the bank said.

"The sluggishness of domestic consumption and investment has deepened further and exports have decreased significantly owing to the worldwide economic slowdown."

Slumping global demand has hit South Korea's export-oriented economy hard. Exports dropped by 17.4 per cent in December year-on-year while industrial production contracted by 14.1 per cent in November.

The Bank of Korea forecast a 2-per-cent growth rate for 2009, after about 3.6 per cent for the previous year. However, a number of experts predict that the economy could shrink for the first time since the Asian economic crisis in the 1990s. (dpa)