South Korea’s central bank kept its policy interest rate steady on Friday and warned of a highly uncertain path ahead as a broadening conflict in the Middle East threatens to derail growth and worsen inflation.
The Bank of Korea flagged both the risk of a resurgent inflationary spiral fueled by crude prices and slower growth after the board voted to keep its benchmark interest rate unchanged at 2.50%.
All 31 economists polled by Reuters expected policy rates to remain on hold.
“The growth rate for this year is expected to be below the February forecast of 2.0%,” the bank said in a statement, adding that the future path is likely to be determined by the Iran war, the semiconductor cycle and other factors.
The BOK now expects headline inflation to “exceed considerably” the February forecast of 2.2% as higher oil prices and the won’s recent weakness have effectively raised the cost of essential imports.
