Seoul: The central bank said Thursday it would maintain a cautious stance in conducting monetary policy in light of heightened economic and financial uncertainties due to the Middle East conflict. "The economic outlook has become more uncertain since March due to rapidly changing external conditions stemming from the Middle East conflict, while volatility in the financial and foreign exchange markets has also increased significantly," the Bank of Korea (BOK) said in its biannual monetary policy report released earlier in the day.
According to Yonhap News Agency, the BOK emphasized the importance of maintaining a prudent and neutral policy stance for now, rather than forming expectations toward a specific policy direction. This approach involves closely monitoring changes in domestic and external conditions, as well as key economic indicators. The BOK recently kept its benchmark interest rate steady at 2.5 percent in its latest rate-setting meeting held late last month. This marked the sixth consecutive on-hold decision, as the bank sought to ensure financial stability amid a weak local currency and an unstable housing market despite stronger-than-expected growth momentum.
"The Middle East conflict could have a significant impact on future policy decisions. But it is still too early to assess its impact given heightened uncertainties," BOK Deputy Gov. Park Jong-woo stated during a press briefing. He further mentioned that the effects of the conflict on growth and inflation will be examined before making decisions at the April monetary policy meeting.
Regarding prices, the BOK noted that global inflation could face renewed upward pressure from various demand- and supply-side factors. These include higher oil prices amid the Middle East crisis, expanding investment in artificial intelligence, stronger-than-expected global economic growth, and the United States' tariff policies. The report indicated that a 1 percentage point increase in global inflation could raise consumer prices in South Korea by about 0.2 percentage point.