The Bank of Korea said Thursday it will raise the ceiling on loans extended to smaller firms through commercial lenders to 20 trillion won ($18.11 billion) from the current 15 trillion won and cut the rates on some loan schemes as well, the latest move by the central bank to support Asia's fourth-largest economy.

The central bank has kept the cap at 15 trillion won since July when it decided to raise the ceiling to help spur loans to small and medium-sized enterprises.

The loans, which BOK extends through commercial banks, carry an annual interest rate ranging from 0.5 percent to 1 percent. The loan cap is determined on a quarterly basis.

The BOK cut its policy rate by a quarter percentage point to a record low of 1.75 percent early this month as the economy is feared to relapse into a slowdown after briefly showing signs of a recovery.

The move effective from April 1 comes as the country's economy is reeling from a low growth trend amid fears over deflation.

The South Korean economy expanded 3.3 percent in 2014 as increased facility investments offset slowing growth in construction investment and exports.

It marks a slight improvement from 2013, when the economy expanded 2.9 percent from a year earlier.

But the economy has been going downhill as it suffered economic headwinds. On-quarter growth, which reached 1.1 percent in the first quarter, slowed to 0.5 percent in the second quarter and fell to 0.3 percent in the fourth quarter after slightly picking up to 0.8 percent in the third quarter.

Facility investment increased 5.8 percent last year, turning around from a 0.8 percent on-year contraction in 2013. Construction investment growth, however, sharply slowed to 1 percent from a 5.5 percent growth in the previous year.

The central bank said the raised loan cap, coupled with low borrowing costs, will help facilitate capital spending in the corporate sector.

"Smaller firms have continued to suffer problems raising capital despite ample liquidity in the financial system," said an official at the BOK.

Earlier, BOK Gov. Lee Ju-yeol has said that the central bank would consider raising the loan cap for smaller firms as a series of monetary easing measures have failed to produce satisfactory results. (Yonhap)