The Bank of Korea has kept its benchmark interest rate unchanged, signaling a cautious stance. Escalating conflict in Iran has triggered a surge in energy prices, elevating both inflation risks and threats to economic growth, thereby complicating the policy outlook.

On Friday, the Bank of Korea maintained the seven-day repurchase rate at 2.5%, extending a pause that has been in place since July of last year. The decision was in line with expectations from all 18 economists surveyed by media. This steady rate comes amid stable inflation and resilient economic growth.

Last month, consumer prices rose 2.2% year-on-year, up from 2% in February, and remain close to the central bank's target level. Additionally, the Bank of Korea raised its 2026 economic growth forecast in February. However, the ongoing conflict in the Middle East now poses risks to both inflation and growth. As a major energy importer heavily reliant on Middle Eastern energy imports, South Korea faces pressure from rising import costs as international oil and gas prices climb. Since most energy transactions are denominated in U.S. dollars, higher oil prices could also intensify pressure on the Korean won to depreciate, further driving up inflation and squeezing domestic demand.

Friday's decision marks the final policy move under Governor Rhee Chang-yong's tenure, which concludes later this month. During his four-year term, Rhee oversaw a full range of monetary policy operations: interest rate hikes to curb high inflation after the COVID-19 pandemic, followed by the initiation of a rate-cutting cycle as growth concerns emerged. His tenure also included efforts to strengthen communication with the market.