By Kwanwoo Jun
South Korea's central bank kept its base rate unchanged for a seventh straight meeting ahead of a leadership change, as Middle East tensions weigh on the trade-reliant economy.
The Bank of Korea on Friday left its benchmark seven-day repurchase rate at 2.50%, in line with expectations. It has held rates steady since a cut in May 2025.
All 27 analysts polled by The Wall Street Journal ahead of the decision had expected no change.
Like many central banks, the BOK is assessing the conflict's impact on the global economy. Earlier this week, the central banks of India and New Zealand also held rates, mirroring peers across Asia and the West.
Policymakers are expected to remain cautious in the first half as the global economy absorbs higher energy prices and supply-chain disruptions.
The U.S. and Iran announced a two-week truce earlier this week, with peace talks set to begin on Saturday in Pakistan. But the detente seems fragile, and the economic fallout will take time to repair.
Shipping through the Strait of Hormuz--a key global energy supply route--remains limited despite the cease-fire, squeezing markets for oil, gas and key agricultural and industrial commodities.
As a major importer of oil and gas from the Middle East, South Korea is exposed to the energy market turmoil. Supply disruptions in key chipmaking inputs such as helium could also weigh on the economy.
Stagflation--when economic growth stalls and inflation accelerates--is a growing concern in South Korea, as the fallout from the war stokes upside risks to prices and downside risks to growth.
If the conflict escalates and inflation accelerates, analysts say that could pressure the BOK to tighten policy.
Analysts expect outgoing BOK Governor Rhee Chang-yong to refrain from offering clear guidance at his final policy meeting before his term ends on April 20.
Incoming Governor Shin Hyun-song, an Oxford-educated economist and former Bank for International Settlements official, is due to chair his first rate-setting meeting in May.
Shin said earlier that he would pursue "a balanced monetary policy that takes into account inflation, growth and financial stability," and elaborate on the approach at his confirmation hearing later this month.
Some economists expect Shin to be more aggressive on inflation, though that doesn't mean he will rush to raise rates, given the prevailing view that monetary policy is ill-suited to address supply-driven inflation shocks.
Still, central banks have signaled readiness to act if needed, and markets will closely watch the BOK's moves for sings of how hawkish it could turn.
South Korea's headline inflation picked up to 2.2% in March from 2.0% in the two preceding months, highlighting the early effects of surging energy costs on the economy.
The Seoul government has introduced price caps on petroleum products and extended fuel-tax cuts while drafting a roughly $17 billion supplementary budget to help ease the effect of energy shocks and support growth.
The Organization for Economic Cooperation and Development in March raised its 2026 inflation forecast for South Korea to 2.7% from 1.8%, while lowering its growth forecast to 1.7% from 2.1%.
That compares with the BOK's February projections of 2.2% inflation and 2.0% growth for 2026.
ANZ economist Krystal Tan said South Korea's headline inflation is likely to stay closer to 3% than the central bank's 2% target through much of 2026, driven by higher oil prices and shipping costs. She expects the BOK to raise rates in the second half to anchor inflation expectations.
Write to Kwanwoo Jun at kwanwoo.jun@wsj.com
(END) Dow Jones Newswires
04-09-26 2144ET
