Bank of Korea reduces rates to 3%

Korea may be badly hit by the downturn because of its foreign debt

South Korea's central bank has cut its key interest rate by a record one percentage point to 3%, twice the expected reduction.

It is the fourth reduction since October, when the rate stood at 5.25%.

South Korea is vulnerable to the global downturn because of its high levels of foreign debt, weak currency and doubts about the health of its banking sector.

"We are on the verge of an emergency situation that may need more drastic policy," the bank said.

"There is now judged to be a strong likelihood that growth will fall sharply as a result of the worldwide economic slowdown along with the financial market unrest including the credit crunch," the Bank of Korea's rate-setters added.