Seoul, April 17: South Korea's central bank kept its benchmark interest rate unchanged Thursday in a bid to support the wobbly currency and ensure financial stability, while adopting a cautious stance amid heightened uncertainty from the Donald Trump administration's sweeping tariff campaign.

In a widely expected decision, the monetary policy committee of the Bank of Korea (BOK) held its key rate unchanged at 2.75 percent during a rate-setting meeting in Seoul.

The decision follows a quarter-percentage-point rate cut at the previous meeting in February, which marked the third reduction since October 2024, when the BOK began its monetary easing cycle for the first time since August 2021, reports Yonhap news agency.

"Regarding Trump's tariff policy, it is as if we have suddenly entered a dark tunnel," BOK Gov. Rhee Chang-yong told a press briefing. "We are choosing to slow down and wait until things brighten up."

One of the six board members dissented from the on-hold decision, while all of them expressed the need to keep open the possibility of further rate cuts over the next three months given sluggish economic growth.

Thursday's decision underscored the BOK's focus on supporting the local currency, even as it grapples with a trade-off between supporting economic growth and safeguarding markets.

Volatility increased in the financial and foreign exchange markets recently due mainly to the Donald Trump administration's unpredictable tariff policies.

Earlier this month, the local currency fell to as low as 1,484.1 won against the U.S. dollar, the lowest level in about 16 years, after the U.S. announced "reciprocal" tariffs that include a 25 percent tariff for South Korea, along with a 10 percent baseline tariff on foreign imports.

In a dramatic policy shift, however, the U.S. president announced a 90-day pause in the implementation of the reciprocal tariffs shortly after they came into effect, and the Korean won has somewhat strengthened to a yearly high of the 1,420 won level in recent sessions.

Currently, the gap between the key interest rates of South Korea and the U.S. stands at up to 1.75 percentage points, and a further widening of the gap could lead to additional depreciation of the Korean currency, according to experts.

Federal Reserve Chair Jerome Powell has taken a cautious stance, pledging to closely monitor markets before making any adjustments to interest rates.

Speaking at the Economic Club of Chicago on Wednesday (local time), Powell also warned that Trump's tariffs could trigger stagflation, which means stagnant economic growth coupled with rising prices.

The BOK appeared to have opted to secure policy space by holding its rate steady, as South Korea is preparing for tariff negotiations with Washington.

The won opened at 1,416.0 won on Thursday, up 10.7 won from the previous session.

The BOK chief warned of a significant downgrade in this year's economic growth outlook, citing the impact of the U.S. tariffs and prolonged domestic political instability following former President Yoon Suk Yeol's shocking imposition of martial law in December.

On Tuesday, Finance Minister Choi Sang-mok proposed increasing the size of an envisioned supplementary budget to 12 trillion won (US$8.44 billion) from the initially proposed 10 trillion won to support key industry sectors.

Such a supplementary budget would boost the growth rate by 0.1 percentage point this year, according to the BOK chief.

(IANS)

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