South Korea keeps interest rates unchanged as Trump tariffs heighten economic risks

South Korea's central bank kept its policy rate unchanged on Thursday, as expected, a move aimed at bolstering the volatile won as Washington seeks to reshape the global trading order by imposing massive tariffs that could hurt economic growth.

The Bank of Korea's seven-member committee kept its benchmark interest rate unchanged after the central bank cut it to 2.75% at its monetary policy meeting, with 24 of 37 economists in a Reuters poll expecting the rate to remain at 2.75%.

Analysts expect the Bank of Korea to raise its benchmark interest rate to 2.25% by the end of the third quarter of this year as changes in U.S. tariff policy heighten concerns about a global recession and threaten to dent export demand in Asia's fourth-largest economy.

South Korean Finance Minister Choi Sang-moo warned on Tuesday that tariffs would pose a significant downside risk to economic growth and said the government would try to delay the implementation of reciprocal tariffs in negotiations with the United States.

The United States has taken wide-ranging trade actions against a number of countries, including South Korea, which was subject to a 25% reciprocal tariff, but U.S. President Donald Trump has suspended that tariff for three months.

This measure has eased the exchange rate pressure on the Korean won to a certain extent. On April 9, the won fell to a 16-year low, a level last seen when markets and policymakers were grappling with the global financial crisis.

Although the won briefly pared losses, the market did not react strongly to the decision to keep interest rates unchanged.

The South Korean government plans to negotiate with Washington to reduce tariffs and has drafted 12 trillion won ($8.41 billion) in extra budget spending to support the economy amid a political crisis and an uncertain global trade environment.

South Korea will hold a presidential election on June 3 after former President Yoon Seok-yeol was impeached for declaring martial law last December.

"We expect the government to pass an additional budget of at least 20 trillion won by the end of the year, which could boost economic growth by 0.2-0.4 percentage points. But its impact may not be felt until next year," said Park Jong-hoon, an economist at Standard Chartered Bank Korea, who accurately predicted the Bank of Korea's decision on Thursday.

He believes the Bank of Korea will cut interest rates in May "taking into account the financial volatility caused by Trump's trade policies."