caution

April 10 (Asia Today) — Bank of Korea Gov. Rhee Chang-yong said Thursday that uncertainty in the Middle East is having a greater impact on South Korea’s economy than interest rate policy, calling for a cautious, wait-and-see approach.

Speaking after a monetary policy meeting, Rhee said policymakers should first assess how the Middle East situation and related negotiations unfold before making decisions on rates.

“There was little discussion about raising or lowering rates, and many members agreed to monitor the situation for now,” he said.

The central bank held its benchmark interest rate steady at 2.50%, marking a seventh consecutive freeze since July.

Markets had expected that rising oil prices linked to the Middle East conflict could push inflation higher and prompt a policy shift. Consumer prices rose 2.2% in March, up 0.2 percentage points from a month earlier, adding to upward pressure.

Rhee dismissed concerns about stagflation – a combination of slowing growth and rising prices – as unlikely if the current crisis is resolved soon.

“If the situation ends at this point, the possibility of stagflation is low,” he said, while warning that unpredictable developments could still lead to a worst-case scenario.

He highlighted potential damage to Iran’s energy infrastructure as a key variable, noting that prolonged disruptions could weigh on South Korea’s economy even after the crisis subsides.

The central bank also indicated that this year’s economic growth could fall below its February forecast of 2.0%, citing weaker sentiment and production disruptions since March despite earlier gains from exports and consumption.

Inflation, however, is expected to exceed the earlier projection of 2.2% due to higher global oil prices.

Rhee gave a generally positive assessment of the government’s supplementary budget, which relies on excess tax revenue rather than bond issuance, easing concerns about fiscal stability.

However, he expressed concern that about 5 trillion won (about $3.7 billion) of the budget is allocated to local education funding under existing rules, suggesting the need to review whether such allocations are appropriate during an economic slowdown.

On exchange rates, Rhee said the value of the Korean won should be assessed relative to the U.S. Dollar Index rather than focusing solely on the won-dollar rate, noting that short-term fluctuations can be driven by domestic supply and demand factors.

Thursday’s meeting was Rhee’s final rate-setting session before his term ends April 20.

— Reported by Asia Today; translated by UPI

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Original Korean report: https://www.asiatoday.co.kr/kn/view.php?key=20260410010003215