Seoul, May 28 (IANS) South Korea’s central bank kept its benchmark interest rate unchanged on Thursday amid lingering uncertainty in the Middle East, but it raised the possibility of future tightening as inflationary pressures and concerns over currency weakness intensified.

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.

It marked the eighth consecutive on-hold decision, even as the central bank remains in an easing cycle, reports Yonhap news agency.

The BOK began monetary easing in October 2024 and has cut the benchmark interest rate by a cumulative 100 basis points from 3.5 percent to support economic growth, but it has kept it unchanged since July 2025.

“Given the uncertainties surrounding developments in the Middle East and that their spillover effects remain high, the Board judged that it would be appropriate to maintain the current level of the base rate while assessing developments in the conflict and their impacts on growth and inflation,” the BOK said in a released statement.

However, the BOK said it plans to decide the timing of a rate hike in the future as economic growth is expected to continue its solid improvement trend supported by strong semiconductor exports, and consumer prices are gaining momentum due to high oil prices.

“The board will decide the timing of any rate hikes while assessing the extent of the increase in inflationary pressure, the improvement trend in the domestic economy and financial stability,” it said.

The BOK said five board members supported the decision to keep the rate unchanged, while two members, Chang Yong-sung and Ryoo Sang-dai, voted against the decision, proposing to raise it to 2.75 percent.

BOK Gov. Shin also reaffirmed the central bank’s hawkish stance in future monetary policy.

“It is necessary to raise the base rate at an appropriate time,” he said during a press conference, citing high inflation, steady growth and foreign exchange volatility.

“We will determine the timing and pace of interest rate hikes based on incoming data, while assessing the extent of inflationary pressures, the trend of economic recovery, and financial stability,” he added.

The Korean won has been weakening sharply in recent months amid the U.S.-Iran war, hovering around the psychologically important level of 1,500 won against the U.S. dollar.

Shin said the authorities will take decisive action against excessive foreign exchange volatility, warning of “no tolerance for one-sided FX movements.”

At the same time, the central bank raised its economic growth forecast for South Korea by 0.6 percentage point to 2.6 percent for 2026, citing robust exports driven by booming semiconductor demand.

Despite rising commodity prices and supply constraints stemming from the protracted Middle East war, the BOK said Asia’s fourth-largest economy is expected to continue its improvement trend, supported by a strong semiconductor sector and the supplementary budget.

Shin said the exports will likely contribute 0.7 percentage point to the country’s growth this year, alongside with 0.2 percentage point by the government’s fiscal support and 0.1 percentage point by a rally in the local stock market.

The BOK also revised up its inflation prediction to 2.7 percent from 2.2 percent, citing higher international oil prices in the aftermath of the U.S.-Iran war.

—IANS

na/