South Korea Keeps Rates amid Middle East Uncertainty

The Bank of Korea (BoK) held its policy interest rate steady at 2.5% for the seventh consecutive meeting in April 2026, in line with market expectations, as policymakers assessed the impact of the Iran war on domestic cost pressures and GDP growth. The decision came amid rising inflation and heightened volatility in financial and foreign exchange markets. Annual inflation accelerated to 2.2% in March 2026, up from 2.0% in the previous two months, marking the highest reading since last December and surpassing the central bank’s 2% target. Looking ahead, inflation is expected to rise to the mid- to upper-2% range due to a surge in global oil prices. CPI for this year is expected to exceed the February forecast of 2.2%, while core inflation is also likely to be somewhat higher than the previous forecast of 2.1%. Meanwhile, the growth rate for this year is expected to be below the February forecast of 2.0%.

The Bank of Korea held its policy interest rate steady at 2.5% for the sixth consecutive meeting in February 2026, continuing its extended pause in the easing cycle in line with market expectations. The unanimous decision reflects policymakers’ confidence in ongoing support from the chip sector and stable inflation, giving the BOK more time to assess financial stability risks while reducing the economy’s need for additional stimulus. Officials are also keeping an eye on the won’s weakness against the dollar and the potential for lower borrowing costs to drive up household debt. Since October 2024, the central bank has cut its benchmark interest rate by a total of 100 basis points to 2.5%, to support economic growth, keeping the rate unchanged since May 2025. On the macroeconomic front, the central bank revised up its GDP growth forecast to 2% in 2026 from the previous projection of 1.8%, while the average inflation rate is now expected at 2.2% from the prior 2.1% estimate.

The Bank of Korea unanimously kept its base rate unchanged at 2.5% for a fifth consecutive meeting in its first policy decision of 2026, in line with market expectations. The move reinforced signals that the current easing cycle has likely reached an end following a cumulative 100bps since October 2024, as policymakers shifted their focus toward financial stability with the won hovering near 16-year lows. In its latest statement, the BoK removed language on considering further cuts, underscoring caution amid geopolitical risks, capital outflow pressures, and uncertainty over U.S. Federal Reserve policy. Concerns over high household debt levels and exchange-rate volatility also weighed on the latest decision. On the macro outlook, policymakers left inflation forecasts unchanged, projecting headline CPI at 2.1% and core at 2.0% this year, both near target. It also maintained its 2026 GDP growth forecast at 1.8%, pointing to a steady but modest recovery.