S. Korea holds rates, braces for tariffs: What’s next for the economy?

Welcome to Within The Frame where we bring the most pressing issues across the globe into focus, I'm Kim Mok-yeon.

South Korea's economic policy is standing at a crossroads.

The Bank of Korea's latest decision to hold its base rate at 2.5% — despite slowing domestic demand — reflects a growing tug-of-war between financial stability and the need to jumpstart growth.

Household debt continues to climb, real estate markets are showing signs of overheating, and uncertainty from abroad is only adding fuel to the fire.

At the center of those external risks is Washington's renewed tariff push.

With an August 1 deadline looming, Korea now faces the prospect of sector-specific U.S. tariffs before a broader agreement is in place — a scenario that worries export-dependent industries.

To explore these challenges further, we're joined by experts in the studio.

is Kwak Jun-hee, Assistant Professor of Economics at Sogang University. Welcome.

And to my is Sung Soo Eric Kim, CEO at Datacrunch Global and adjunct Professor at Yonsei Graduate School of Business. Good to see you.

1. (KWAK) Let's start with the Bank of Korea's latest policy move. What is your assessment of the decision to hold the base rate at 2.5% in July, despite previous easing moves?

2. (KWAK) Given the central bank's pause, what does this signal about the Bank of Korea's policy priorities — is it leaning toward financial stability rather than growth at this stage? What should the central bank prioritize going forward?

3. (KIM) With interest rates still high and debt levels rising, what risks do you see for Korea's financial system and for companies trying to borrow money?

4. (KIM) In light of this cautious macro environment, how are Korean firms responding to the Bank's rate stance and regulatory signals?

5. (KWAK) Zooming out to international dynamics, given the historic 2% interest rate gap with the U.S., how much room does Korea really have for further independent rate cuts without risking capital outflow?

6. (KWAK) Now turning to U.S. tariffs, the August 1 deadline is looming. What economic risks does Korea face if the U.S. imposes sector-specific tariffs before a full agreement is finalized?

7. (KIM) In order to resolve this, Seoul is now pushing for a so-called phased landing zone approach to negotiating security and economic issues with the U.S. How effective do you find this approach in mitigating business uncertainty?

8. (KIM) Building on that, could elements like digital services, AI collaboration, and regulatory flexibility realistically be used as leverage in a "package deal" with the U.S.?

9. (KWAK) Given the external uncertainty Korea faces from potential U.S. tariffs, can tools like supplementary budgets or consumer coupons genuinely help cushion Korea from looming external economic shocks?

10. (KIM) And finally, how can Korean companies strategically position themselves during this volatile negotiation period to minimize tariff exposure and maintain U.S. market access?