SEOUL, Oct 9, 2008 (AFP) - South Korea's central bank Thursday cut its key interest rate by a quarter-point, joining central banks worldwide in an attempt to lessen the impact of the financial crisis on the overall economy.

The cut in the benchmark 7-day repurchase agreement rate, by 25 basis points to 5.0 per cent, was the first since November 2004.

'Despite robust exports, the growth of the South Korean economy is markedly weakening due to sluggish domestic demand,' the Bank of Korea said in a statement.

Private spending fell 0.2 percent in the second quarter from three months earlier.

'There will likely be no bright signs for economic growth until the first half of next year,' bank governor Lee Seong-Tae told a press conference, hinting at a further cut in coming months.

Lee said the growth rate could fall further in the fourth quarter and in the first half of 2009. In July the bank had forecast growth of 3.9 percent in the second half.

The central bank went ahead with its unexpected rate cut despite continuing inflationary pressure fuelled by the fall of the won.

The consumer price index rose 5.1 percent year-on-year in September, slowing from a 5.6 percent gain in August as oil and commodity prices showed signs of stabilising.

But core inflation, which excludes food and fuel prices, jumped 5.1 percent year-on-year last month compared to a 4.7 percent increase in August.

'If the foreign exchange market stabilises and the downward path of oil prices continues, the growth of inflation is expected to ease toward next year,' Lee said.

The local currency tumbled to a 10-year low against the dollar Thursday due to a deepening global credit crunch, which is expected to pose further difficulties for local companies and banks in securing dollars.

At one point it was trading at 1,480, down 85 won from Wednesday's close, but it recovered later in the morning to 1,419 on suspected intervention.

'I think market players are displaying an irrational overreaction in the foreign exchange market. Today's rate cut will not have a negative effect on the won's value,' the governor said.