The central bank is desperate to rebuild confidence
South Korea has cut its main interest rate for the first time in almost a year, because of fears that the economy is being hurt by the Sars virus and the threat of nuclear weapons in North Korea.
The cut in the rate to 4% from 4.25% was in line with most analysts' expectations.
The Bank of Korea, the country's central bank, said it hoped the move would help keep economic growth above 4%, the level it believes is the minimum to keep job creation going.
"We have agreed to cut... rates to protect jobs and maintain stable growth, even at the sacrifice of other sectors", Bank of Korea Governor Park Seung told reporters in the capital, Seoul.
The impact of Severe Acute Respiratory Syndrome - the Sars virus - has been felt across the region.
In South Korea, the central bank has already chopped its main forecast for economic growth to 4.1% in 2003 from an earlier prediction of 5.7%.
Price rises have been muted, with inflation falling to 3.7% in April from an annual 4.5% the previous month, giving the bank room for manoeuvre.
Sars has had more of an impact on other countries, such as Hong Kong, but South Korea has an additional problem just across the border.
North Korea is thought to have nuclear weapons already, and a tense standoff between Pyongyang, Beijing, Tokyo and Washington DC shows no signs of easing.