Seoul: The Bank of Korea (BOK) has decided to keep its benchmark interest rate unchanged at 2.75 percent, according to a statement released following the Monetary Policy Board's meeting. The central bank cited stable inflation but highlighted increased downside risks to economic growth due to sluggish economic activities in the first quarter and deteriorating global trade conditions.
According to Yonhap News Agency, the Board deemed it appropriate to maintain the current Base Rate to assess any changes in domestic and external conditions. The uncertainty over the future economic outlook remains high, influenced by changes in U.S. tariff policies, government stimulus measures, and volatile exchange rates. The Board also noted the need to monitor household loan trends.
The statement indicates that the global economy faces heightened risks to growth and uncertainties along the inflation path, primarily due to escalating global trade tensions. Financial markets have experienced increased volatility in key indicators, driven by uncertainties related to U.S. tariff policies. Stock prices in major countries fell sharply but partially rebounded with the suspension of reciprocal tariffs. Long-term U.S. Treasury bond yields increased sharply after a previous decline, while the U.S. dollar weakened significantly.
Domestically, economic growth has been weaker than expected, with both domestic demand and exports slowing due to prolonged political uncertainties and worsening trade conditions. Employment in major industries like manufacturing continues to decline, despite an overall increase in employment numbers. The GDP growth outlook is expected to fall below the February forecast of 1.5 percent, with high uncertainty surrounding trade negotiations and potential supplementary budgets.
Inflation remains stable, with consumer price inflation and core inflation recorded at 2.1 percent and 1.9 percent, respectively, in March. Short-term inflation expectations have held steady at 2.7 percent. Despite declining oil prices and subdued demand pressure, inflation is expected to remain around 2 percent. The future inflation path will be influenced by domestic and international economic conditions, exchange rate movements, global oil prices, and government price stabilization measures.
In financial and foreign exchange markets, volatility has increased significantly. The Korean won experienced sharp fluctuations against the U.S. dollar due to U.S. tariff policy announcements and China's retaliatory actions. Stock prices fell sharply due to concerns about an economic slowdown but rebounded partially. Long-term Korean Treasury bond yields have declined considerably. The housing market saw significant increases in prices and transaction volumes in Seoul, which slowed following regulatory changes. Household loan growth remains subdued, but recent housing transactions may temporarily expand loan growth.
The Board will continue to focus on stabilizing consumer price inflation over the medium-term while monitoring economic growth and financial stability. The Board will maintain its rate cut stance to mitigate downside risks to economic growth, adjusting the timing and pace of further Base Rate cuts as needed. It will closely monitor changes in domestic and external policy environments to assess impacts on inflation, household debt, and exchange rates.