The Bank of Korea decides to keep interest rates unchanged... closely monitoring Middle Eastern conflicts and economic shocks

Members of the Bank of Korea’s Monetary Policy Committee once again froze the benchmark interest rate at 2.50% on April 10, 2026, and unanimously agreed that further confirmation of the impact of the Middle East war on domestic prices, growth, and financial markets should be obtained before taking countermeasures.

According to the minutes of the monetary policy decision meeting released by the Bank of Korea on the 28th, all six other members of the Monetary Policy Committee, except Governor Lee Chang-yong, agreed to keep the interest rate unchanged. This marks the seventh consecutive time the benchmark rate has remained at the same level. While the rate decision should have considered both inflation and economic trends, the rapid emergence of the Middle East military conflict became a variable during this meeting. Because this could trigger simultaneous fluctuations in international oil prices, raw material prices, and exchange rates, this factor was considered to increase the difficulty of monetary policy judgment.

The members generally cited uncertainty as the main reason. One member analyzed that after the Middle East war, downside risks to growth (factors pulling the economy down) have increased, while upside risks to prices (factors pushing prices higher) have also strengthened. At the same time, volatility in financial markets has expanded. However, the members judged that it is currently difficult to estimate how long the war will last, how widespread its impact will be, and the extent of its effect on the domestic economy. Therefore, some suggested that in the short term, close attention should be paid to the development of the situation, while comprehensively assessing underlying price trends, growth paths, and financial stability.

Other members expressed similar views. One member believed that, given the evolution of the Middle East situation, the economic outlook path could undergo significant changes; another stated that it is advisable to adopt a wait-and-see approach for now. This is close to the idea that, rather than hastily raising or lowering interest rates, it is better to retain policy flexibility until external shocks are confirmed by actual data. It was explained that once monetary policy changes direction, the impact on the overall market is significant, so in the face of supply shocks (such as price increases caused by disruptions in oil, natural gas, and other resource supplies), greater caution is warranted.

Within the Monetary Policy Committee, there was also a view that future policy focus should be more on price stability. One member pointed out that if last year’s first half focused on economic recovery, and until early this year on financial stability, then in the short term, efforts should be concentrated on easing inflationary pressures. Another member analyzed that restoring normalcy to energy supply chains may take a long time, and high exchange rates could also stimulate import prices, putting pressure on prices and financial stability. At the same time, this member assessed that the current benchmark rate is at an intermediate level within the estimated range of the nominal neutral interest rate, and that it will take time to judge the persistence of supply shocks. They also emphasized the need to monitor the effects of additional government budgets and changes in monetary policies of major countries.

In summary, the minutes show that the Bank of Korea is more focused on confirming the transmission strength of external shocks rather than immediately changing policy direction. If the Middle East situation becomes prolonged, leading to sustained fluctuations in international energy prices and exchange rates, expectations of rate cuts may be delayed. Conversely, if the shocks subside earlier than expected and price pressures ease, policy space to support the economy could again expand. This trend may serve as an important basis for judging what kind of balance the Bank of Korea will choose between inflation and growth in the future.