(Bloomberg) -- The Bank of Korea cut its benchmark interest rate and kept its pledge to consider further reductions as it looks to support an economy jolted by political turmoil and threatened by the trade impact of Donald Trump’s tariff plans.
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The central bank lowered its seven-day repurchase rate by a quarter-percentage point Tuesday to 2.75% in a move forecast by all 22 economists polled by Bloomberg.
Governor Rhee Chang-yong hinted at a post-decision briefing that more rate cuts would come this year. While the BOK is more likely hold at its next meeting, Rhee said two out of six of his colleagues on the board are already open to a rate cut in the next three months.
The governor also reiterated the need for government spending to help prop up growth and warned against relying only on monetary policy to goose the economy. Rhee cited Trump’s protectionist policies as a factor for a gloomier 1.5% growth forecast for this year.
“The BOK kept its forward-looking statement unchanged which emphasized timing and pace, suggesting that it will ease at every other meeting rather than taking back-to-back action,” said Wee Khoon Chong, senior APAC market strategist at BNY.
The South Korean three-year government bond yield was down 1.2 basis points for the day at 2.6% after retracing some of its earlier declines as Rhee spoke. The won erased losses for the day to trade flat at 1,430.50 against the dollar as of 12:10 pm Seoul time.
Tuesday’s move marked the third reduction to rates in the current easing cycle after the BOK conducted a policy pivot in October. In cutting rates, authorities are attempting to spur consumption hurt by the political chaos that engulfed South Korea after President Yoon Suk Yeol briefly imposed martial law in December.
That botched move ultimately led to Yoon’s impeachment and the first-ever arrest of a sitting president in South Korea, leaving the country without a clear policy direction as fears over Trump’s tariffs hit markets. A gauge of consumer confidence showed that pessimists outnumbered optimists for a third month in February.
“Consumption is in a rough patch with uncertainties remaining high,” said KB Securities economist Gweon Heejin. “It doesn’t look like the private sector can rebound by itself and fiscal spending is now needed to help keep the economy from losing any more momentum.”