Nov. 7 (Bloomberg) -- The Bank of Korea will probably lower interest rates today, the third cut in a month, to prevent the economy from sinking into its first recession since the nation needed an International Monetary Fund bailout a decade ago.

Governor Lee Seong Tae and his board will cut the seven-day repurchase rate by a quarter point to 4 percent, the lowest since 2006, according to 10 of 16 economists surveyed by Bloomberg News. One expects a half-point reduction, one forecasts a three-quarter point cut and four predict no change.

South Korea is boosting spending and pumping money into the banking system to limit economic damage from the global credit crisis that has sent Korea's won down 32 percent this year and led to a 45 plunge in the benchmark stock index. India, Japan, China and Australia have lowered rates in the past week as the financial turmoil that has pummeled the U.S. and Europe threatens to engulf the region's export-dependent economies.

``The central bank is joining forces with the government to prevent a recession amid the global financial crisis,'' said Kim Jae Eun, an economist at Hana Daetoo Securities Co. in Seoul, who expects another 25 basis-point cut by the end of the year.

The Bank of England reduced its benchmark rate by 1.5 percentage points yesterday and the European Central Bank cut its rate by a half-point. The IMF yesterday predicted economic contractions in the U.S., Japan and euro region next year, calling for further interest-rate cuts and fiscal stimulus.

Korea's rate decision is due before 11 a.m. in Seoul.

Currency, Shares

The won fell 2.6 percent to 1,365 against the dollar at 9:30 a.m. local time. The Kospi stock index declined 4 percent to 1,049.05, in line with market declines across the globe.

The nation's stock index gained the most in two decades last week after the Federal Reserve's agreement on Oct. 30 to provide the Bank of Korea with $30 billion stoked confidence banks will be able to secure dollars and fund offshore borrowing.

South Korea's foreign-currency liquidity problems are almost over and the nation should focus on spurring economic growth, President Lee Myung Bak said this week. The government has guaranteed banks' debt up to $100 billion and provided lenders with U.S. dollars.

Finance Minister Kang Man Soo unveiled a 14 trillion won ($10.5 billion) package of extra spending and corporate tax breaks this week, adding to an almost $20 billion in income-tax reductions announced in September.

Hana Daetoo's Kim expects the government's action and interest-rate cut will help the economy escape a prolonged recession even as domestic and global demand cool.

Further Cuts

Governor Lee hinted at further rate cuts after slashing the benchmark by a record 75 basis points at last week's emergency meeting, telling reporters his board will focus more on the risk of slower economic growth. The Bank of Korea reduced borrowing costs on Oct. 9 for the first time in four years.

Economists from Capital Economics and SC First Bank Ltd. forecast South Korea's benchmark rate will be cut to 2 percent by mid-2009 as the economy falters.

South Korea's slowdown is deepening. Exports rose at the weakest pace in 13 months in October on declining shipments to China, South Korea's biggest overseas market. Retail sales gained by the least in nine months in September.

Hyundai Motor Co., South Korea's second-biggest exporter, on Oct. 23 slashed its global vehicle-sales forecast for the year. Posco, the region's biggest maker of stainless steel, said last month it will cut output by about a third this quarter to cope with slowing demand.

Consumer prices rose 4.8 percent in October, the smallest gain in six months, providing room for further rate reductions. Inflation peaked at 5.9 percent in July.

The following table shows forecasts for today's decision and for rates by the end of 2008 and the first half of 2009.

--------------------------------------------------------------
                                   Nov.    2nd-Half   1st-Half
                                   2008      2008       2009
--------------------------------------------------------------
Median Forecast                    4.00%     3.75%     3.00%
% forecasts at Median                63%       43%       27%
High                               4.25%     4.25%     4.00%
Low                                3.50%     3.00%     2.00%
Forecasts                            16        14        15
--------------------------------------------------------------
Capital Economics                  3.75%     3.25%     2.00%
Citibank                           4.00%     3.75%     3.00%
Credit Suisse                      4.25%     3.75%     3.25%
Daewoo Securities                  4.00%     4.00%     3.50%
DBS Group                          4.25%     4.25%     3.75%
Forecast Singapore Ltd.            4.00%     3.50%     2.50%
Hana Daetoo Securities             4.00%     3.75%     4.00%
HI Investment & Securities         4.25%     3.75%     3.00%
Hyundai Securities                 4.00%     3.75%     3.00%
Mirae Asset Securities             4.00%     3.75%     3.25%
Moody's Economy.com                4.00%     -----     3.50%
Morgan Stanley                     4.25%     -----     -----
Samsung Securities                 3.50%     3.00%     2.50%
SC First Bank                      4.00%     3.50%     2.00%
Westpac Banking Corporation        4.00%     4.00%     3.00%
==============================================================

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net

Last Updated: November 6, 2008 19:38 EST