SEOUL: The Bank of Korea held its benchmark interest rate at 2.50% on Friday, extending a pause that began in July 2025 and marking a seventh straight policy meeting without a change, as policymakers weighed rising inflation pressure, weaker growth risks and heightened market volatility. The decision by the seven-member Monetary Policy Board was unanimous, and the central bank said uncertainty tied to developments in the Middle East had complicated the policy outlook for an economy exposed to energy prices and exchange-rate swings.
The central bank said consumer price inflation rose to 2.2% in March from 2.0% in February, driven by a sharp increase in petroleum product prices, while core inflation, which excludes food and energy, eased slightly to 2.2%. Short-term inflation expectations among the public rose to 2.7%. The Bank of Korea said annual consumer inflation is now expected to exceed considerably its February forecast of 2.2%, with higher global oil prices adding pressure even as government price-stabilization measures are expected to partly soften the impact.
At the same time, the bank said South Korea’s economic growth this year is likely to come in below its February projection of 2.0%. It said the domestic economy had maintained an improvement trend through the first quarter, supported by strong exports and a recovery in consumption, but that the outbreak of conflict in the Middle East had increased downside pressure on growth, weakened sentiment and created production constraints in some industries. The bank also said the won had moved into the 1,500 per dollar range before retreating after a temporary ceasefire between the United States and Iran.
Inflation pressures rise
Governor Rhee Chang-yong said external conditions had changed significantly since the board’s previous meeting in February, with higher oil prices and supply constraints expected to weaken global growth and lift inflation. The Bank of Korea said volatility in major market prices had increased sharply as risk-off sentiment strengthened, with Korean Treasury bond yields rising before easing and stock prices swinging after a correction and partial rebound. It also said the stronger U.S. dollar and foreign investors’ net sales of domestic shares had added to pressure on the won.
The board said household loans continued to post a low rate of increase under a tight macroprudential policy stance, while housing price gains in Seoul and nearby areas had slowed and expectations for further increases had moderated. Still, it said more time was needed to assess whether that stabilization trend would take hold. The central bank reiterated that monetary policy would continue to focus on bringing inflation back to its 2.0% target over the medium term while also monitoring growth and paying attention to financial stability.
Hold extends long pause
Friday’s decision kept the base rate at the same level first set in July 2025, after four quarter-point reductions between October 2024 and May 2025. The April meeting was the first since the latest Middle East conflict erupted shortly after the board’s February session, shifting the policy backdrop within weeks. In its statement, the Bank of Korea said it was appropriate to maintain the current rate while it assessed how the conflict and related market moves were affecting inflation, growth and financial stability.
The bank said future policy decisions would be based on additional information related to the conflict and on incoming economic indicators. It said it would closely assess the magnitude and persistence of the shock’s impact on domestic inflation and growth as uncertainty remains high. With consumer prices back above target, the growth outlook softer than projected in February and financial market volatility elevated, the Bank of Korea left borrowing costs unchanged while continuing to assess the balance between price stability and economic activity. – By Content Syndication Services.