Seoul: U.S. President Donald Trump's expansive tariff scheme is anticipated to exert downward pressure on South Korea's economic growth and inflation, although its effect on the local financial market is predicted to be limited, the central bank stated on Thursday.

According to Yonhap News Agency, the Bank of Korea (BOK) made this evaluation in its latest biannual monetary policy report. This assessment came a day after the United States implemented sweeping 25 percent tariffs on steel and aluminum imports from all countries. Washington also intends to introduce "reciprocal tariffs" on April 2, imposing new levies on U.S. imports to match the tariffs other countries place on American goods. This move is expected to escalate tensions further in the ongoing trade war, which has already unsettled the global financial market.

The report highlighted that the tariff policy is expected to reduce South Korea's exports to the U.S. and other countries amid a slowdown in global trade. This is likely to weaken investor sentiment due to increased uncertainties in the trade environment, intensifying downward pressure on economic growth and inflation.

The BOK projects a 1.5 percent on-year expansion for South Korea's economy in 2025 and 1.8 percent growth for the following year. However, in a worst-case scenario of escalating trade conflict, South Korea's GDP growth could decrease by 0.1 percentage point in 2025 and 0.4 percentage point in 2026 from these baseline forecasts.

Deputy Gov. Park Jong-woo expressed caution, stating, "We now maintain a baseline scenario, but uncertainties remain high as things are changing at a fast pace. It is too early to determine whether we need to lower our growth forecast. We will closely monitor the situation."

The report also indicated that the Trump tariffs would have a "limited" impact on inflation this year, but potential slower growth next year could lead to greater downward pressure on prices. The central bank previously forecasted consumer prices to grow 1.9 percent annually in both 2025 and 2026.

Regarding the financial market, the BOK suggested that Trump's tariff policy is expected to have "a limited impact" on South Korea's stock market and long-term interest rates compared to the situation during his first term in office. However, the report emphasized that uncertainties are high, and market participants remain cautious, necessitating vigilance for increased market volatility as the U.S. policy is implemented.

In the event of intensifying or prolonged trade disputes, the stock market could experience a bearish trend for an extended period, and government bond yields might face further downward pressure amid risk-averse sentiment.