South Korea's central bank cuts borrowing costs to nurse the sluggish economy

SEOUL, South Korea (AP) — South Korea’s central bank cut its key interest rate and sharply lowered its growth outlook for the country’s economy in 2025, as it moved Thursday to counter U.S. President Donald Trump’s tariff hikes and weak domestic demand worsened by recent political turmoil.

Following a monetary policy meeting, the Bank of Korea cut its benchmark interest rate by a quarter percentage point to 2.5%. It was its fourth cut since October, when it began lowering borrowing costs for the first time in years to support a weakening economy. The bank slashed its 2025 growth outlook to 0.8%, nearly halving its previous projection of 1.5% announced in February.

Share prices jumped, with the Kospi gaining 1.7%.

Although trade tensions have recently eased, the global economy is still expected to slow due to the lingering effects of increased tariffs. U.S.-China friction over trade and geopolitical uncertainties will continue to weigh on markets, the bank said in a statement.

South Korea’s domestic economic activity remained sluggish in April following a contraction in the first quarter driven by weak consumption and business investment, the bank said. It said job creation in manufacturing and other sectors was slow.

Since beginning his second term, Trump has vowed to slap huge new tariffs on foreign products entering the United States, including those from Mexico, Canada and China, which he insists will create more domestic jobs and shrink the federal deficit.

In recent weeks, South Korea has sent trade officials to Washington to discuss the Trump administration’s trade measures, including reciprocal tariffs and potential product-specific duties on semiconductors and cars, which are major exports for the country’s trade-dependent economy.

A decision by a U.S. federal court saying Trump lacks the legal authority to impose such tariffs could upset his plans, but the White House has appealed and it's unclear what will happen in the longer run.

Experts say South Korea's leverage in trade talks and its ability to tackle domestic economic challenges have been undermined by political instability after former President Yoon Suk Yeol’s ill-fated imposition of martial law in December. Yoon was formally ousted from office in April, setting the stage for a snap presidential election next week.