[WEEKLY FOCUS] BOK holds interest rate steady at 2.75% despite U.S. tariff shock amid "high uncertainty"

South Korea's central bank on Thursday decided to leave its benchmark interest rate as it is at 2.75% — a decision that comes amid growing economic headwinds both at home and abroad, including volatile exchange rates for the Korean won against the greenback due to trade uncertainties.

For more, we're joined in the studio by our economic correspondent, Moon Hye-ryeon.

Welcome, Hye-ryeon.

Thank you for having me.

Hye-ryeon, let's begin with the decision itself.

Yes, the Bank of Korea held its base rate steady at 2-point-7-5 percent during its third Monetary Policy Committee meeting of the year.

This follows a quarter-point cut in February, and while the BOK has signaled a general easing stance, it opted to take a wait-and-see approach this time.

"Considering the overall uncertain conditions, we decided to maintain our policy stance toward rate cuts, but judged that it would be appropriate to keep the base rate at its current level this time and observe further how domestic and external policy conditions evolve."

So rather than moving forward with another rate cut right away, the bank is choosing to pause and reassess, especially in light of volatility in the global economy and capital markets.

Why has the BOK decided to hold off on another rate cut, despite its earlier signals?

There are several reasons, and a key one is the Korean won.

The exchange rate against the U.S. dollar has been on a rollercoaster — surging to a 16-year high earlier this month, then plummeting to its lowest for the year.

Right now, the interest rate gap between the U.S. and South Korea is 1-point-7-5 percentage points.

A further widening could spark more capital outflows, putting even more pressure on the won.

At the same time, global factors are weighing heavily.

Trade conflicts, especially involving the U.S., have increased market volatility.

The BOK is watching how U.S. tariff policy unfolds, since changes there could ripple across financial markets, impacting Korea's exports and investor sentiment.

Domestically, household loans are ticking up again due to a rebound in housing transactions.

That also gives the BOK a reason to hold, at least for now, to avoid overheating financial risk.

Let's turn to the economy. What's the BOK's assessment of South Korea's current economic conditions?

Frankly, the outlook is cloudy.

The BOK acknowledged that economic growth was slower than expected in the first quarter.

Both domestic demand and exports have taken a hit due to ongoing political uncertainty and deteriorating trade conditions.

As a result, the central bank now expects full-year growth to come in below its earlier forecast of 1-point-5 percent.

And they stress that the trajectory is "highly uncertain" — especially with trade negotiations still in flux.

On inflation, things are more stable.

March's consumer price index rose 2-point-1 percent on-year, while core inflation, which excludes volatile food and energy prices, climbed 1-point-9 percent.

Those figures are more or less aligned with projections, which gives the BOK a bit more leeway to focus on growth rather than tightening to rein in prices.

Still, a high exchange rate could push some prices up, so it's a balancing act.

So, where does this leave the BOK's policy path moving forward? What are analysts expecting?

That's where it gets interesting.

Until the end of last year, many predicted two rate cuts this year — one in February and another in May.

But now, after this hold, the most widely discussed scenario is three or more cuts before the end of the year.

The BOK is signaling openness to further easing, but with caution.

Any future cuts will depend heavily on data, and that data includes what the U.S. Federal Reserve decides to do.

Let's hear what one expert had to say about that.

"Tariffs are a major issue, but they are not the only one. One key factor is the U.S. Federal Reserve. Fed Chair Jerome Powell has made it clear that the Fed is in no rush to cut rates. If the Fed keeps rates high, that means the BOK has less room to maneuver without triggering capital outflows."

Finally, what about the longer-term direction? Is the BOK shifting its focus?

Yes, some experts believe we're seeing a subtle pivot.

While the BOK has historically paid close attention to the exchange rate, especially in times of heightened dollar strength, there are signs it's beginning to prioritize the domestic economy more actively.

Another expert told us this.

"Korea's exchange rate against the dollar is also affected by the dollar index, the Japanese yen, and the Chinese yuan. So, rather than making decisions based solely on the exchange rate, the outlook is that the Bank of Korea will start focusing more on the domestic economy."

And that's in line with the BOK's latest statement.

They said they'll continue to monitor growth, inflation, household debt, and external conditions, and adjust policy accordingly to strike a balance between stability and support.

So, while the easing bias remains intact, the pace and timing of future rate cuts will be highly dependent on how things evolve, both in Seoul and globally.

We'll be keeping a close eye on how that plays out.

Hye-ryeon, thank you for your report.

Thank you for having me.