SOUTH Korea's central bank yesterday cut its benchmark interest rate for the first time in seven months, joining government efforts to boost the export-reliant economy as manufacturers such as Hyundai Motor Co face tougher competition from Japanese rivals boosted by the weakening yen.

The quarter percentage point cut in the official policy rate to 2.5 percent comes after South Korea's parliament earlier this week approved US$15.3 billion of stimulus spending through an extra budget.

Bank of Korea Governor Kim Choong-soo said the interest rate cut was intended to "maximize the effect of the extra budget."

Other central banks are also lowering borrowing costs to spur lending and growth amid an uncertain outlook for the global economy. Europe, India and Australia cut key interest rates this month while the Japan and the US are engaged in an unprecedented expansion of their domestic money supplies.

The South Korean rate cut was a surprise to financial markets. Most analysts expected the central bank to keep interest rates flat after Kim said in April the economy was on track for slow recovery and the central bank's monetary policy stance was already supporting growth.

Kim expressed concerns about the yen's fall against the US dollar and other currencies, which hurts South Korean exporters that compete with Japanese companies in overseas markets.

In support of Tokyo's economic revival plans, Japan's central bank is aiming to double the money supply over the next two years to end a prolonged and debilitating spell of deflation in the world's third-largest economy. The yen has shed about 20 percent against the dollar since late 2012.

The weaker yen is taking its biggest toll on South Korea's steel and auto industries. Japan's steel exports grew 10.7 percent in the first quarter over a year earlier while exports of South Korean steel fell 10.6 percent in the same period, the Korea International Trade Association said.

Toyota Motor Corp said the yen boosted operating profit by 150 billion yen (US$1.5 billion) in its business year ended March 2013.