Seoul, South Korea (AP) - The Bank of South Korea lowered its key interest rates and significantly lowered the growth prospects of the country's economy in 2025 as it hiked Thursday with tariffs against U.S. President Donald Trump, while domestic demand from recent political turmoil is weaker.

After the monetary policy meeting, South Korea's bank lowered its benchmark interest rate by a quarter to 2.5%. This is the fourth cut since October, when it began to lower borrowing costs for the first time in years to support the recession. The bank cut its 2025 growth outlook to 0.8%, nearly halving its previously announced 1.5% forecast in February.

Shares rose, and Kospi rose 1.7%.

Despite recent easing of trade tensions, the global economy is still expected to slow down due to the lingering impact of tariff increases. The U.S.-China friction will continue to weigh markets on trade and geopolitical uncertainty, the bank said in a statement.

The bank said that South Korea's domestic economic activity remained stagnant in April after a contraction in April due to weak consumption and commercial investment. It said jobs in manufacturing and other sectors are slow to create jobs.

South Korea's Bank of Korea Governor Rhee Chang Yong said additional tax rates could be lowered in the coming months, citing worsening economic outlook. But he also cautioned against lowering borrowing costs too quickly, given the country's high household debt and real estate prices.

"If interest rates are lowered too quickly, the risk of liquidity flowing on the prices of assets such as houses rather than enhancing the real economy is high," he said in a press conference. "Any basic interest rate adjustment must take into account its impact on real estate prices and household debt in the Seoul area."

Since the start of his second term, Trump has vowed to crack down on 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 narrow the federal deficit.

South Korea has sent trade officials to Washington in recent weeks to discuss the Trump administration’s trade measures, including reciprocity tariffs on semiconductors and automobiles and potential product-specific tariffs, the country’s main exports relying on trade-dependent economy.

A U.S. federal court ruling says Trump’s lack of legal mandate to impose such tariffs could undermine his plans, but the White House has appealed that it is unclear what will happen in the long run.

Experts say political power undermines South Korea's leverage in trade negotiations and its ability to deal with domestic economic challenges after former President Yoon Suk Yeol imposed martial law in December. Yoon was formally removed in April, laying the foundation for next week's temporary election.