Seoul, Jun 9 (IANS): South Korea's central bank unexpectedly cut its policy rate to an all time low on Thursday, a day after the announcement to create 11 trillion won ($9 billion) funds to help restructure shipping and shipbuilding industries.

Bank of Korea (BOK) Governor Lee Ju-yeol and six other policy board members decided to lower the benchmark seven-day repurchase rate from the previous all-time low of 1.5 per cent to a new record low of 1.25 per cent, Xinhua news agency reported.

It was the first rate cut in 12 months after the bank cut it from 1.75 per cent to 1.50 per cent in June 2015.

The rate cut was an unexpected decision as most of experts predicted a rate freeze. According to a Korea Financial Investment Association (KFIA) survey of 200 fixed-income experts, 79.4 per cent of respondents predicted a rate on hold.

The BOK had been under pressures to lower borrowing costs further to tackle possible side effects from the government-led restructuring, including massive layoffs and the weakening of private consumption and facility investment.

The unexpected rate cut was aimed at helping tackle possible negative effects from the restructuring.  

More than 90 per cent of the 11 trillion won restructuring funds will be funded by the BOK loans, which will be provided for state-run banks, such as the Korea Development Bank (KDB) and the Export-Import Bank of Korea (Eximbank) that are exposed to massive loans to troubled shipping firms and shipbuilders and need capital to meet the capital adequacy ratio.