SEOUL, April 10 (Xinhua) -- South Korea's central bank on Friday froze its policy rate for the seventh successive time amid lingering uncertainties such as rising inflationary pressure and higher exchange rate volatility, triggered by the Middle East tensions.
Bank of Korea (BOK) Governor Rhee Chang-yong and other monetary policymakers decided to leave the benchmark seven-day repurchase rate unchanged at 2.50 percent.
It was in line with market expectations. According to the Korea Financial Investment Association's poll of 100 fixed-income experts, 93 percent predicted the rate on hold this month.
The central bank made the rate freeze decision for the seventh straight time after reducing the key rate by 25 basis points in February and May of 2025 and in October and November of 2024.
The BOK found it difficult to either raise or lower interest rates as the Middle East conflict increased upward pressure on headline inflation and the South Korean won versus U.S. dollar exchange rate while the economic growth faced downward pressure.
The central bank said in a statement that there was a high degree of uncertainty surrounding the future course of developments in the Middle East, amid the rising upside pressures on inflation, increasing downside risks to growth and heightened volatility in financial and foreign exchange markets.
The consumer price index (CPI) gained 2.2 percent in March from a year earlier after climbing 2.0 percent in February.
Oil products' price jumped 9.9 percent last month, raising the overall inflation by 0.39 percentage points. It was the fastest in almost three and a half years since October 2022.
Exchange rate fluctuations recently widened, with the won versus dollar exchange rate surging to 1,530.1 won per dollar at the end of March from 1,439.7 won a month earlier.
Inflation expectations, which measure the outlook among consumers over headline inflation for the next 12 months, added 0.1 percentage point to 2.7 percent in March compared to the previous month.
Despite the two-week ceasefire in the Middle East, concerns remained about downward pressure on the economic growth.
To tackle the Middle East tensions and support people's livelihood, the South Korean government unveiled an extra budget of 26.2 trillion won (17.7 billion U.S. dollars) in late March.
The composite consumer sentiment index (CCSI), which gauges the sentiment of consumers over economic situation, declined 5.1 points from a month earlier to 107.0 in March, marking the first downturn in three months.
The U.S. Federal Reserve froze its target range for the federal funds rate at 3.50-3.75 percent in March, keeping the rate difference with South Korea at 1.25 percentage points.
If the BOK lowers its policy rate amid the still wide interest rate gap with the United States, it could trigger a sharp rise in the exchange rate.
Pressure eased on the central bank to lower rates further thanks to a boom in semiconductor exports.
Export, which accounts for about half of the export-driven economy, spiked 48.3 percent to hit an all-time monthly high of 86.13 billion U.S. dollars in March compared to the same month of last year.
Semiconductor export skyrocketed 151.4 percent to reach a record high of 32.83 billion dollars, surpassing 30 billion dollars for the first time. ■
