South Korea Central Bank holds rate at 2.5% as Middle East tensions cloud outlook

South Korea's central bank left its benchmark interest rate unchanged at 2.50% on Friday, maintaining a cautious stance as continued Mideast tensions add to inflation pressure, growth risks, and financial market volatility.

The bank's Monetary Policy Board said it decided to keep the base rate unchanged while assessing the impact of the conflict-now in a ceasefire-pointing to "rising upside pressures on inflation, increasing downside risks to growth, and heightened volatility in financial and foreign exchange markets." The decision was unanimous among all seven board members.

The Bank of Korea said consumer inflation rose to 2.2% in March from 2% in February, driven by a sharp increase in petroleum product prices, and warned that inflation this year is now expected to considerably exceed its February forecast of 2.2%.

The central bank also said this year's growth is likely to come in below its February projection of 2%, as higher energy prices and supply constraints weigh on the economy, although strong semiconductor exports and government fiscal support could partly offset the drag.

The April decision marked the seventh consecutive hold, even though the Bank of Korea remains in an easing cycle after having cut rates by a cumulative 100 basis points from 3.5% since October 2024.

The rate decision came against the backdrop of a severe energy shock after the Iran war disrupted flows through the Strait of Hormuz, a key artery for global crude and LNG trade.

Brent crude initially climbed toward $120 a barrel after the waterway's closure, while continued restrictions on shipping have kept supply concerns elevated even with ceasefire efforts.