South Korea kept interest rates unchanged Thursday while nudging its growth forecast slightly up, as the country faces high house prices and uncertainty over US President Donald Trump’s tariff war.

Asia’s fourth-largest economy grew more than expected in the second quarter of this year as strong demand for semiconductors propelled exports to their largest gains in nearly five years.

The Bank of Korea (BOK) said Thursday it would hold its benchmark interest rate at 2.5 per cent, as forecast.

“While inflation remains on a stable path, uncertainty over the growth outlook is still high,” the BOK said.

“However, signs of modest improvement are emerging, led by domestic demand,” the central bank said, adding that housing prices in Seoul made it “appropriate to maintain the current base rate”.

However, the BOK warned that US tariffs posed risks to the economy.

South Korean goods were initially hit with a 25 percent across-the-board US tariff but Seoul managed to secure a last-minute agreement for a 15 percent rate after agreeing to huge investments in the United States.

The BOK said exports were expected to remain solid but “gradually weaken as the impact of US tariffs broadens”.

Despite the bank’s increased growth projection for this year — to 0.9 percent from 0.8 percent in May — “the future growth path is judged to carry significant uncertainty, stemming from US-China trade negotiations, product-specific tariffs, and the pace of domestic demand recovery”, it added.

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Bank governor Rhee Chang-yong said the current rate-cut stance is likely to be sustained till the first half of next year, due to weak growth.

He added that the “very positive” summit this week between Trump and South Korea’s President Lee Jae Myung made the BOK’s decision to hold rates less difficult.

Trump met with Lee in Washington on Monday, the same day South Korean companies announced major investment plans in the United States as part of the recent trade agreements.

AFP

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