South Korea Keeps Rate Steady at 2.50%
South Korea kept its monetary interest rates unchanged as the Middle East conflict brought more pressure on inflation and risks to economic growth.The Bank of Korea decided to leave the base rate steady at 2.50%, according to a Friday disclosure from the central bank.The decision was in line with ING's prediction that rates would be unchanged. In an April 2 note, ING analysts Lynn Song and Min Joo Kang said strong demand for chips helped offset the effect of commodity supply constraints, while government measures are mitigating the effects of the oil price shocks that could trigger inflation higher."The currently available information suggests that the global economy has continued its relatively favorable growth trend, supported by AI-related investment and fiscal expansion in major economies," the central bank said in a press release. "However, growth is expected to weaken and inflation to increase, affected by energy price hikes and supply constraints stemming from the war in the Middle East."The BoK forecasted that inflation is likely to rise to between the mid- and upper- 2% range due to global oil price hikes.Consumer price inflation in March increased to 2.2% from the previous month's 2%, while short-term inflation expectations among the general public moderately climbed to 2.7%, the BoK said.The U.S. and Iran only recently reached an 11th-hour deal to a two-week ceasefire after President Donald Trump threatened Tehran to wipe it out unless the Strait of Hormuz is reopened. The impact of the ceasefire is yet to be seen, especially since a longer-term peace treaty seemed uncertain.ANZ said that the policy messaging from BoK did not signal imminent tightening as Governor Rhee Chang-yong said it is "premature to discuss a rate hike" amid uncertainty on the duration of the war in Iran and the scale of its impact."The BoK continues to retain optionality, with any rate hike likely conditional on the price shock proving persistent and materially lifting inflation expectations," ANZ Asia Economist Krystal Tan said.ANZ maintains its stance that the BoK will add 25 basis points to its rate in the second half of the year.