THE Bank of Korea (BOK) cut its benchmark interest rate in a widely expected move to support an economy jolted by political turmoil and threatened by the trade impact of Donald Trump’s tariff plans.
The central bank lowered its seven-day repurchase rate by a quarter-percentage point to 2.75 per cent and further reduced this year’s growth forecast for the economy on Tuesday (Feb 25). The rate cut was forecast by all 22 economists polled by Bloomberg. The BOK now sees the economy expanding by 1.5 per cent in 2025, a tad lower than a forecast given in January.
Tuesday’s move marked the third reduction to rates in the current easing cycle after the BOK conducted a policy pivot in October. In cutting rates, authorities are attempting to spur consumption hurt by the political chaos that engulfed South Korea after President Yoon Suk-yeol briefly imposed martial law in December.
That botched move ultimately led to Yoon’s impeachment and the first-ever arrest of a sitting president in South Korea, leaving the country without a clear policy direction as fears over Trump’s tariffs hit markets. A gauge of consumer confidence showed that pessimists outnumbered optimists for a third month in February.
Officials are also bracing for the potential impact from protectionist steps by the US. Trump last week flagged plans to unveil tariffs of around 25 per cent on semiconductors, autos, and pharmaceuticals. Previously he ordered 25 per cent tariffs on steel and aluminium imports, imposed a 10 per cent duty on all Chinese imports, and touted reciprocal tariffs on numerous trading partners.
Earlier in February, economists surveyed by Bloomberg cut their forecasts for South Korea’s economic growth to 1.6 per cent in 2025, down from 1.8 per cent in the previous survey, to account for the gloomier prospects for global commerce.
Many economists had pencilled in a rate cut in February after the BOK’s January decision to hold. Even with headwinds building, governor Rhee Chang-yong injected uncertainty into that question by warning during an interview earlier this month against speculating on a cut.
Rhee will hold a press conference later Tuesday to address questions over the future trajectory of rate policy. In addition to disclosing how many board members dissented against the latest decision, the governor is likely to outline expectations among board members for rates over the next three months. BLOOMBERG
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