South Korean central bank stands pat as Middle East war fuels inflation, growth risks

The Bank of Korea held its policy rate steady, citing heightened inflation and growth risks stemming from the escalating conflict in the Middle East. The war has intensified global oil price pressures, tightening the trade-off between inflation control and economic stimulus, with South Korea’s import costs rising and consumer sentiment weakening. This external shock is transmitting through energy-linked inflation and risk-off capital flows, weighing on the Korean won and equity market stability. Markets most exposed include Korean bonds, the KOSPI, and the KRW, all sensitive to imported inflation and shifts in global risk appetite. Traders will watch the upcoming CPI report and any signals on rate path adjustments during the Bank of Korea’s next meeting.

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