The Bank of Korea's Monetary Policy Board on Thursday decided to keep the benchmark interest rate unchanged at 2.50 percent and maintain its monetary policy. It made the decision after judging uncertainty to be high as the Middle East war simultaneously increased inflationary pressure and growth-slowing pressure and widened volatility in financial and foreign exchange markets.

The board said the global economy had continued a solid trend on the back of AI investment and fiscal expansion. It said growth was expected to slow and inflation to rise due to energy price increases and supply disruptions stemming from the Middle East. In global financial markets, volatility widened as risk aversion lifted interest rates, strengthened the dollar and pushed down stock prices, before some of those moves partly reversed after a temporary truce between the United States and Iran.

The domestic economy continued an improving trend as exports and consumption recovered. After the Middle East situation, weakened economic sentiment and production disruptions in some industries emerged, widening downward pressure on growth. It raised the possibility that this year's growth rate could fall below the previously projected 2.0 percent.

Inflationary pressure is increasing. The consumer price inflation rate in March was 2.2 percent, higher than the previous month due to rising oil product prices, and is expected to rise to the mid-to-high 2 percent range on the impact of higher international oil prices. It expected annual inflation to exceed the previous forecast by a considerable margin.

Volatility in financial markets also increased. The won-dollar exchange rate rose into the 1,500 won range before falling partly, and government bond yields rose on inflation concerns and then adjusted. The stock market also saw large swings. Household loans maintained a low pace of increase, and the rise in housing prices in the Seoul metropolitan area slowed somewhat.

On future monetary policy, the board said it would consider both price stability and financial stability.

It said it would determine the policy direction while monitoring developments in the Middle East situation, trends in the exchange rate and oil prices, and whether household debt and the housing market remain stable.

All 7 members of the Monetary Policy Board voted in favor of the decision to keep the base rate unchanged.