Trump's tariffs bring uncertainty, South Korea's central bank cuts interest rates by 25 basis points as scheduled.

The Bank of Korea lowered its benchmark interest rate on Tuesday in an effort to support the South Korean economy, which has been impacted by political turmoil and threats from the trade implications of Trump's tariff plans. The Bank of Korea cut its 7-day repurchase rate by 25 basis points to 2.75%, in line with expectations, and reaffirmed its commitment to considering further rate cuts. In a statement, the Bank of Korea said that the rate cut was aimed at "alleviating downward pressure on the economy," and noted that economic growth is expected to slow significantly. The Bank of Korea lowered its economic growth forecast for this year to 1.5%, slightly lower than January's forecast. Following the announcement, the yield on South Korea's 3-year government bonds fell by 2.5 basis points to 2.587%. As of the time of writing, the South Korean won was stable against the US dollar. Tuesday's rate cut marked the third rate cut by the Bank of Korea in this easing cycle. The Bank of Korea shifted its policy direction in October last year, attempting to stimulate consumption by lowering interest rates. The country plunged into political turmoil after a brief imposition of martial law in December, ultimately leading to the impeachment of President Park Geun-hye. This botched move resulted in the impeachment of Park Geun-hye, leaving the country without a clear policy direction and market concerns over Trump's tariffs. A consumer confidence index showed that in February, pessimists outnumbered optimists for the third consecutive month. KB Securities economist Gweon Heejin said, "Consumption is in a difficult period, uncertainty remains high. The private sector seems unlikely to rebound on its own, and fiscal spending is now needed to help prevent the economy from losing more momentum." The Bank of Korea's accommodative policy may help South Korea's current president and finance minister, Kim Sang-mok, seek to boost the economy by advance increasing fiscal spending. The main opposition party, the Democratic Party of Korea, proposed drafting an additional budget plan worth up to 35 trillion Korean won (24 billion US dollars) to help economic development. Bank of Korea Governor Lee Chang-yong said in an interview with Bloomberg earlier this month, "It is appropriate to supplement the economic growth loss caused by the imposition of martial law with an additional budget of 15 to 20 trillion Korean won." Officials are also preparing for the potential impact of US protectionist measures. Trump last week announced plans to impose tariffs of around 25% on semiconductors, cars, and drugs. Prior to this, he ordered a 25% tariff on imported steel and aluminum, a 10% tariff on all Chinese imports, and boasted about reciprocal tariffs against many trading partners. Trade is crucial for South Korea. The country's export strength has allowed its economy to outperform its own capabilities, with South Korean manufacturers integrated into a broad global supply chain. In January this year, South Korea's tech exports saw their first contraction in over a year as Chinese demand fell during the Chinese New Year period. However, after adjusting for differences in working days, exports for that month showed a slight increase. Bloomberg economist Hyosung Kwon said, "Looking ahead, we expect the Bank of Korea to cut rates three more times by 2025, each by 25 basis points, bringing the benchmark rate to 2% by the end of the year unless the South Korean won depreciates significantly again. The next move could be in May." In early February, economists surveyed by institutions lowered their forecast for South Korea's economic growth in 2025 from 1.8% in the previous survey to 1.6%, citing dimmer global business prospects. Many economists had previously expected the Bank of Korea to cut rates in February following the central bank's decision to keep rates unchanged in January. Despite negative factors forming, Lee Chang-yong warned in the interview not to speculate on a rate cut, injecting uncertainty into the issue.