SEOUL (Reuters)

South Korea’s central bank announced on Wednesday that U.S. tariffs are likely to exert downward price pressure on domestic markets. This is because more Chinese goods might be redirected to neighboring countries due to the tariffs imposed by Washington.

In its biannual inflation report, the Bank of Korea mentioned that headline inflation is expected to remain just below the bank’s 2% target in the medium term, as weak domestic demand continues to offset rising food and service costs.

The report stated, “In countries such as Korea and Japan, where exports to both the U.S. and China are high, downward pressure on prices due to sluggish demand and falling raw material prices may be a dominant effect.”

Washington imposed a 25% blanket levy on Korean exports in April, which was one of the highest rates placed on a U.S. ally. This rate was temporarily reduced to 10% for a duration of 90 days.

The Bank of Korea (BOK) nearly halved its economic forecast for the year on May 29, reflecting concerns about trade policy uncertainties and diminishing growth momentum.

According to the report, tariffs from Washington may reduce demand in both South Korea and Japan, as these countries are unlikely to respond with retaliatory tariffs.

Furthermore, the central bank emphasized the necessity for significant reforms in the retail distribution structure to alleviate persistently high food prices that are currently impacting households’ purchasing power.