South Korea's central bank cut its key interest rate for the first time in 15 months on Thursday, providing support to an economy dragged down by the shock of a ferry sinking that killed hundreds of teenagers.

The Bank of Korea lowered its policy rate by a quarter percentage point to 2.25 percent.

The bank had kept it unchanged since a rate cut in May 2013.

Analysts had predicted the bank to lower borrowing costs to boost consumer spending, which turned negative due to the shock of the Sewol ferry disaster earlier this year.

Last month, the bank cut this year's growth forecast for Asia's fourth-largest economy to 3.8 percent from 4.0 percent.

Weak domestic spending has been a source of concern.

South Korea's new finance minister unveiled stimulus measures in July to encourage spending by consumers and companies.

The bank was expected to aid the government's stimulus moves as low inflationary pressure gives room for easing.

The sinking in April of the Sewol ferry killed 294 people and left 10 missing, mostly teenagers on a school trip, causing a national outpouring of grief.

Consumer spending shrank in the April-June quarter, hitting its lowest in nearly three years.

1. Bank of Korea governor Lee Ju-yeol chairing monthly monetary policy meeting

2. Lee bangs gavel at start of meeting

3. Various of meeting

4. Lee walking into media briefing room

5. Tilt up of Bank of Korea sign to Lee speaking during briefing

6. SOUNDBITE (Korean) Lee Ju-yeol, Governor of Bank of Korea:

"Today, at the Bank of Korea monetary policy meeting, a monetary policy has been adapted to lower the base interest rate from 2.50 percent to 2.25 percent."

7. Cutaway

8. SOUNDBITE (Korean) Lee Ju-yeol, Governor of Bank of Korea:

"The economic recovery of the US has been on the rise. However, in the European areas, economic recovery continues to show a weakened presence. In the case of newly emerged markets: in China, the flow of economic recovery has continued, but in some nations the economic activity has been in a continual slump, so differences by country have appeared. In the international stock market, because of the influence of geopolitical risks, interest rates and stock prices have fallen, the US dollar has strengthened, and there has been an increase in fluctuation."

9. Wide of Lee giving briefing

South Korea's central bank lowered its key interest rate to a record low on Wednesday in a further attempt to bolster the country's fragile economic recovery.

The Bank of Korea trimmed the key rate by a quarter of a percentage point to two percent for October.

It was the second rate cut this year after the central bank lowered lending costs in August following the deadly ferry disaster, the shock of which dented retail sales and other spending.

The bank on Wednesday also downgraded its growth forecasts for South Korea's economy, Asia's fourth-largest.

It said the economy would likely expand 3.5 percent this year, not 3.8 percent it forecast three months earlier, citing slower-than-expected improvements in capital expenditure and consumer spending.

Next year, South Korea's economy is expected to grow 3.9 percent, instead of four percent.

Analysts expected the rate cut as South Korea's finance minister had said the economic recovery was fragile.

The weak yen and a slow recovery of capital spending were also expected to dent the recovery of the export-driven economy.

Policymakers also saw weak sentiment among economic players as a risk to the economy.

In February 2009, the bank lowered its policy interest rate to 2 percent in the wake of the global financial crisis.

AP TELEVISION

Seoul - 15 October 2014

1. Bank of Korea Governor Lee Ju-yeol walking into BoK's monthly monetary policy meeting

2. Wide of meeting

3. Lee hitting the gravel to indicate the start of the meeting

4. Wide of meeting

5. Lee entering news conference

6. Wide of news conference

7. SOUNDBITE (Korean) Lee Ju-yeol, Governor, Bank of Korea:

"The monetary policy committee of the Bank of Korea decided today to lower the base rate from 2.25 percent to two percent."

8. Journalists at news conference

9. SOUNDBITE (Korean) Lee Ju-yeol, Governor, Bank of Korea:

"The committee will conduct monetary policy so as to maintain price stability over a medium-term horizon and pay greater attention to financial stability. In this process, it will closely monitor external risk factors, such as the shift in the US Federal Reserve's monetary policy stance, as well as the trends of household debt and of capital flows."

10. Shin Dong-joon, director and chief strategist of the Asset Research Department at Hana Daetoo Securities

11. SOUNDBITE (Korean) Shin Dong-joon, Director and Chief Strategist, Asset Research Department at Hana Daetoo Securities:

"Due to concerns that the overall global economy will slow down, it will be difficult for the South Korean economy to immediately get better because of the Bank of Korea's decision to lower the base interest rate. The South Korean government is expanding its fiscal policies, and overseas markets are in the exchange rate war by devaluating currencies. So these will allow us to combine policies supporting domestic consumptions and policies devaluating our currencies in the exchange market. I believe it will also lead to main agents' psychological stability."

12. Various of people shopping on Myeongdong street

13. SOUNDBITE (Korean) Kim Kyeong-mi, Company employee:

"Prices are already very high, so a product which used to be KRW100,000 now costs KRW150,000, so I worry a bit when I go grocery shopping."

14. SOUNDBITE (Korean): Lim Duk-soon, President, Coldwell Banker Commercial:

"Anyhow, as the base interest rate decreases, real estate transactions are more active, and an increasing number of people are trying to purchase buildings and shopping arcades. As the base interest rate is now lower, I think the real estate business will be more active."

15. Various of pedestrians