This photo taken on November 24, 2022 shows the construction of the Korea Bok Bank in Seoul, South Korea. The Central Bank of South Korea increased on Thursday its policy rate to stop inflation, delivering six increases in consecutive rates for the first time. (Photo of Wang Yiliang/Xinhua through Getty Images)
Wang Yiliang | Xinhua news agency | Getty images
The Central Bank of South Korea reduced its policy interest rate at 25 basic points on Thursday when the country faces a double blow of prolonged political agitation and Trump’s radical tariffs.
The Korea Bank reduced rates to 2.5% of 2.75%, its lowest level since August 2022, in line with expectations among economists surveyed by Reuters. That marked the fourth cut of the Central Bank in the last six meetings.
The cutting rates of fourth rates occurred when the country continued to deal with greater political uncertainty after the failed attempt of former leader Yoon Suk Yeol to impose martial law in December.
South Korea was slapped with 25% of reciprocal tariffs by the Trump administration, which were then suspended for 90 days. South Korean leaders are running to reach an agreement with the United States government before the deadline of July 8.
Both parties have declared that they intended to agree on a package on tariffs and economic cooperation by then, but the Minister of Commerce and Industry of South Korea said recently that there was not enough time, and the next elections could delay it even more.
The South Koreans will go to the surveys on June 3 to elect the next president. The SNAP election was called after Yeol was accused as president and withdrawn from office.
South Korea’s GDP growth contracted unexpectedly in the first quarter, reducing 0.1% compared to the previous year, according to early estimates published last month. That marked his first contraction from the fourth quarter of 2020.
The BOK monetary policy board attributed the decision to reduce rates to its expectations that economic growth will decrease considerably “, while inflation remains” widely stable, “according to its statement.
“The Board will maintain its rate cutting posture to mitigate the downward risks to economic growth and adjust the moment and rhythm of any additional base rate cut and closely monitor the changes in the environment of national and external policies,” the statement said.
The Central Bank also reduced its GDP prognosis throughout the year by 2025 to only 0.8%, considerably lower than the previous projection of 1.5%.
The election of a new president next week should lead to the introduction of the “very necessary fiscal stimulus,” said Gareth Leather, a senior economist of Capital Economics, in a note, anticipating that consumer spending to collect.
Even so, that impulse may not be enough to compensate for the fall in the real estate sector and the interruption in exports, dragging GDP growth from the year to only 0.5%, estimated leather.
The country’s Kospi shares index increased 1.25% after the announcement, while South Korean won debilitated 0.71%, the last negotiation to 1383.40 against Greenback.
