Seoul: South Korea's central bank decided to maintain its benchmark interest rate at 2.75 percent on Thursday, as the country grapples with economic uncertainties stemming from the Trump administration's aggressive tariff policies and a weakening won. This decision was made by the monetary policy committee of the Bank of Korea (BOK) during a meeting held in Seoul, following a recent rate cut in February.
According to Yonhap News Agency, the BOK's decision to hold the rate steady underscores its efforts to stabilize the local currency and ensure financial stability in light of heightened market volatility. This comes after the Korean won depreciated significantly against the U.S. dollar earlier this month, reaching its lowest point in 16 years. The depreciation was triggered by the U.S.'s imposition of "reciprocal" tariffs on South Korean goods and other foreign imports.
BOK Governor Rhee Chang-yong addressed the media, describing the current situation as entering "a dark tunnel" due to Trump's tariff policies. He emphasized the need for caution and indicated the possibility of future rate cuts if economic growth remains sluggish. While one board member dissented from the decision to keep the rate unchanged, the consensus was to remain vigilant, keeping options open for further monetary policy adjustments.
The tariff policies have not only affected currency exchange rates but have also raised concerns about potential stagflation, as warned by Federal Reserve Chair Jerome Powell. In response, the BOK is preparing for upcoming tariff negotiations with Washington and is seeking to secure policy space by maintaining the current interest rate.
The Korean won has shown some recovery after the U.S. announced a temporary 90-day pause on the implementation of tariffs, allowing the currency to strengthen slightly. However, experts caution that the existing interest rate gap between South Korea and the U.S. could lead to further depreciation of the won if not addressed.
The BOK is also expected to revise its GDP growth outlook for the year, previously set at 1.5 percent, as it accounts for the ongoing tariff impacts and domestic political instability. Governor Rhee indicated that the revised outlook will be announced in May.
Additionally, the South Korean government is considering expanding its supplementary budget to support key industry sectors, with Finance Minister Choi Sang-mok proposing an increase to 12 trillion won. This fiscal measure aims to boost the country's growth rate by 0.1 percentage point.
In a statement, the BOK highlighted the importance of monitoring exchange rate volatility, household loan trends, and the broader economic landscape, as risks from weak economic activities and global trade challenges persist.