South Korea's Bank of Korea unanimously kept its benchmark interest rate unchanged at 2.5 percent on April 10, marking the seventh consecutive hold since July 2025 amid high uncertainty from the Middle East war, which has fueled inflation risks, growth slowdowns, and won weakness. Governor Rhee Chang-yong noted the won could strengthen quickly if tensions ease. The next policy meeting is May 28.
The Monetary Policy Board of the Bank of Korea unanimously decided to hold the benchmark rate at 2.5 percent during its meeting in Seoul on April 10—a widely anticipated move. This marks the seventh straight hold, spanning nine months since July 2025, following a cumulative 100 basis-point cut from 3.5 percent that began in October 2024 to support growth.
The decision reflects two-sided risks from the escalating Middle East conflict, including upside pressures on inflation, downside risks to growth, and volatility in financial and foreign exchange markets. The war intensified in late February after U.S.-Israeli strikes on Iran, effectively closing the Strait of Hormuz and driving Brent crude prices up over 60 percent in March to above $100 per barrel. Consumer prices rose 2.2 percent year-on-year in March, up from 2.0 percent in February, with annual inflation now expected to exceed the prior 2.2 percent forecast. The Korean won weakened to around the 1,500 level against the dollar—its weakest since 2009—but has partially recovered after a two-week U.S.-Iran ceasefire.
The BOK lowered its 2026 growth outlook below the prior 2 percent forecast, despite strong semiconductor exports and a planned 26.2 trillion-won supplementary budget. The OECD cut its 2026 forecast for South Korea to 1.7 percent from 2.1 percent due to the crisis. Governor Rhee Chang-yong, who opened the meeting with a gavel strike, stated, "Today's decision was not simply a postponement of judgment, but reflects the need to take a closer look at the development of the Middle East conflict."
Rhee noted stagflation risks remain low for now but unpredictable, adding that the won could "fall back quite quickly" to pre-conflict levels if the situation stabilizes, supported by ample foreign currency liquidity. Housing prices in Seoul and Gyeonggi Province continue rising despite regulations, amid calls to address capital region concentration. Rhee's term ends April 20, with Shin Hyun-song nominated as successor.
