Seoul: South Korea's central bank kept its benchmark rate unchanged Thursday, as lingering uncertainty in the Middle East prompted a cautious stance amid intensifying risks of inflation and currency weakness. In a widely anticipated decision, the Monetary Policy Board of the Bank of Korea (BOK) held the key rate steady at 2.5 percent in its rate-setting meeting in Seoul. It is the first monetary policy meeting chaired by BOK Gov. Shin Hyun-song, who took office last month.

According to Yonhap News Agency, this marks the eighth consecutive on-hold decision, despite the central bank remaining in an easing cycle. The BOK began monetary easing in October 2024 and has reduced the benchmark interest rate by a cumulative 100 basis points from 3.5 percent to support economic growth, maintaining it since July 2025. Experts suggested that the central bank might alter its policy path as the economic fallout from the ongoing Middle East conflict starts to impact Asia's fourth-largest economy, intensifying inflationary pressures and foreign exchange volatility.

Additionally, the country's economy expanded by 1.7 percent in the first quarter, the strongest quarterly growth since the third quarter of 2020. Consumer prices increased by 2.6 percent in April compared to the previous year, marking the fastest pace in 21 months. This rise was driven by soaring fuel costs, supported by solid exports amid a semiconductor upcycle and the government-led resilience of domestic demand.

Earlier this month, BOK Senior Deputy Gov. Yoo Sang-dai indicated that higher oil prices are likely to push inflation further in May due to the Middle East conflict and the closure of the Strait of Hormuz, despite the government's price stabilization measures, including the implementation of the fuel price ceiling system. He also mentioned that it might be time to consider a rate hike, given the country's better-than-expected economic growth in the first quarter.