South Korea’s central bank announced that it is prepared to reduce interest rates in May and potentially take further monetary easing steps in response to growing risks to the country’s economy, largely due to U.S. President Donald Trump’s aggressive tariff policies.
Following a routine monetary policy review, the Bank of Korea (BOK) held the benchmark interest rate steady at 2.75%, in line with expectations. However, Governor Rhee Chang-yong indicated that the central bank is closely monitoring economic conditions and is ready to take action if needed.
“All six members of the board, apart from me, are open to an interest rate cut when considering the policy direction over the next three months,” Rhee said during a press conference.
The remarks came amid a rapidly shifting global economic landscape. Earlier in the day, the BOK’s policy statement warned of the possibility of an economic contraction in the first quarter, primarily due to the devastating impact of record-breaking wildfires and ongoing political instability within South Korea.
However, the most pressing concern is the impact of global trade tensions triggered by the Trump administration. Governor Rhee emphasized the growing risks to South Korea’s growth, particularly in light of the U.S. tariffs.
“The downside risks to growth have expanded significantly,” Rhee said. “The intensity of U.S. tariff policies and the responses from major countries are evolving rapidly, making it difficult to even set a basic forecast for future growth.”
The BOK’s decision comes after U.S. Federal Reserve Chairman Jerome Powell disappointed investors by signaling a slower response to market fears, and as the Bank of Canada opted to keep its policy rates unchanged due to uncertainties surrounding U.S. trade actions.
“Given that six members of the board have expressed support for a rate cut, it seems likely that the BOK will lower interest rates in May,” said Paik Yoon-min, an analyst at Kyobo Securities. “Interest rates could fall to 2.25% by the end of this year, with further reductions possible if annual growth drops below 1%.”
Analysts expect the BOK to lower its key interest rate to 2.25% by the end of the third quarter, amid growing concerns that U.S. tariff policies could lead to a global recession, which would severely impact South Korea’s export-driven economy.
The Bank of Korea has already reduced rates three times since October, as part of an ongoing cycle of easing measures.
Meanwhile, Finance Minister Choi Sang-mok warned of significant economic risks from the U.S. tariffs, emphasizing that the South Korean government would aim to delay the imposition of retaliatory tariffs through negotiations with the U.S.
In the broader context of U.S. trade actions, South Korea has faced a 25% reciprocal tariff, although this has been temporarily suspended for three months. The temporary relief helped the Korean won recover slightly after falling to a 16-year low on April 9, a level not seen since the global financial crisis.
Following Rhee’s press conference, the won stabilized at 1,418.1 per dollar, down 0.16%, while treasury bond futures fell and stock markets continued to rise.
In addition to monetary easing, the South Korean government is preparing a supplementary budget of 12 trillion won ($8.41 billion) to support the economy. This move is intended to help the country navigate the ongoing political crisis and volatile global trade conditions, with the presidential election scheduled for June 3.
The government’s plans come after former President Yoon Suk-yeol’s impeachment was upheld, following a controversial martial law declaration in December, leaving South Korea in a state of political flux as it faces uncertain global economic challenges.
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