Seoul: South Korea's central bank has decided to keep its benchmark interest rate unchanged in an effort to support the fluctuating currency and ensure financial stability amid ongoing uncertainty from the U.S. administration's tariff policies.
According to Yonhap News Agency, the Bank of Korea (BOK) announced during a rate-setting meeting that its monetary policy committee held the key rate steady at 2.75 percent. This decision follows a recent quarter-percentage-point rate cut in February, marking the third reduction since October 2024 when the BOK began its monetary easing cycle after a hiatus since August 2021.
The BOK stated that maintaining the current base rate is crucial to assess changes in both domestic and external conditions, particularly considering the high uncertainty in the economic outlook due to U.S. tariff policies and government stimulus measures. The central bank emphasized the need to monitor exchange rate volatility and household loan trends, as downside risks from weak economic activities and unfavorable global trade conditions intensify.
The decision highlights the BOK's commitment to financial stability while balancing the need to support economic growth and market security. Recent financial and foreign exchange market volatility has been largely influenced by the unpredictable tariff policies of the Trump administration.
The local currency hit a 16-year low against the U.S. dollar earlier this month following the U.S. imposition of "reciprocal" tariffs, including a 25 percent tariff on South Korea. However, a 90-day pause on these tariffs by the U.S. president led to a partial recovery of the Korean won.
The interest rate gap between South Korea and the U.S. currently stands at up to 1.75 percentage points, with experts warning that a further widening could result in additional depreciation of the Korean won. Federal Reserve Chair Jerome Powell has adopted a cautious approach, indicating that Trump's tariffs could result in stagflation, characterized by stagnant growth and rising prices.
The BOK's decision to hold the rate appears aimed at preserving policy flexibility as South Korea prepares for tariff negotiations with the U.S. The won showed signs of recovery, opening at 1,416.0 won, an increase from the previous session.
Attention is also focused on the government's supplementary budget plans. Finance Minister Choi Sang-mok has proposed increasing the supplementary budget to 12 trillion won to support crucial industry sectors. The government has announced measures to aid the automobile industry facing U.S. tariffs, along with plans to support the semiconductor industry.