Oct. 27 (Bloomberg) -- South Korea's won will climb 25 percent over the next six months as lower commodity prices reduce the nation's import bill and interest-rate cuts help the economy avoid a recession, Goldman Sachs Group Inc. forecast.

The Bank of Korea lowered its benchmark seven-day repurchase rate on Oct. 9 for the first time in four years and today unexpectedly announced a record 0.75 percentage point reduction to 4.25 percent. Goldman economists Eva Yi and Kwon Goo Hoon wrote in a report that the central bank will cut by ``at least'' another quarter point in the first quarter of 2009.

``Although the won will likely remain under pressure in the near term, we expect the won to strengthen over time on the plunge in commodity prices and expected slowdown in imports,'' the report said. ``The decisive move by the Bank of Korea enhances our confidence that the Korean economy could avoid recession in 2009.''

The currency will strengthen to 1,250 versus the dollar in three months and 1,150 in six months, the economists predicted. The won fell 1 percent to 1,439 per dollar as of 12:58 p.m. in Seoul, extending this year's loss to 35 percent, Asia's worst performance. It reached a decade-low 1,485 on Oct. 9.

The won slumped in recent months as a global credit crisis, stemming from U.S. home-loan defaults, forced local banks and companies to turn to currency markets to meet their dollar financing requirements and prompted overseas investors to dump holdings of riskier assets.

Global funds cut their holdings of Korean shares on all but one day this month and the Kospi stock index has tumbled 37 percent.

Asia's fourth-largest economy expanded 0.6 percent in the third quarter from the previous three months, the slowest in four years, the central bank announced on Oct. 24. The U.S., the world's biggest economy, shrank 0.5 percent in the three months through September, economists estimated in a Bloomberg survey.

Cheaper oil is helping reduce import costs and sustain economic growth in South Korea, Asia's third-biggest buyer of the fuel. The price of crude in New York was recently $63.69 a barrel, down 57 percent from the record $147.27 a barrel reached July 11.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;

Last Updated: October 27, 2008 00:02 EDT