Sintra: The South Korean bank chief has highlighted that the potential consequences of the United States' new tariff policy on economic growth are a significant concern. The central bank is currently evaluating how to implement interest rate cuts while ensuring financial stability.
According to Yonhap News Agency, the Bank of Korea (BOK) Governor, Rhee Chang-yong, shared these insights during a panel discussion at the European Central Bank's annual forum in Sintra, Portugal. He noted that while South Korea's current inflation is stable at around 2 percent, the impact of tariffs is perceived as deflationary rather than inflationary.
Rhee emphasized that the country's growth rate stands at 0.8 percent, which is below potential. He stated that the primary issue is not inflation, but the extensive impact of tariffs on economic growth. Negotiations are ongoing regarding the U.S. administration's tariff policy, following a suspension of reciprocal duties on South Korea with a deadline for talks set for July 8.
In May, the BOK revised its economic growth forecast for South Korea, lowering it to 0.8 percent from a previous 1.5 percent due to weak consumption and slowing export growth amid uncertainties from U.S. tariff measures. Rhee mentioned that the BOK would remain in an easing cycle given the growth rate, but financial stability risks, particularly rising housing prices in metropolitan areas, are being monitored closely.
The BOK initiated its monetary easing cycle in October, marking a shift in policy since August 2021, with four interest rate cuts totaling 1 percentage point through May.