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South Korea’s central bank is widely expected to leave its benchmark interest rate unchanged this week, but growing inflation concerns linked to the Iran conflict and rising oil prices are increasing expectations for future rate hikes.
According to a Reuters poll conducted between May 19 and May 25, 30 out of 32 economists forecast the Bank of Korea (BOK) will maintain its key policy rate at 2.50% during its May 28 policy review. Only two analysts predicted an immediate increase.
However, market sentiment has shifted sharply toward tighter monetary policy later this year. More than 70% of economists surveyed expect at least one interest rate hike by the end of September 2026. In the previous Reuters survey, only a small number of economists anticipated a rate increase.
The change in outlook comes as South Korea’s inflation rate climbed to 2.6% in April, exceeding the BOK’s 2.0% target and reaching its highest level in nearly two years. Rising global oil prices, fueled by ongoing Middle East tensions and the Iran war, have kept crude prices above $100 per barrel for several months, increasing inflationary pressure across Asia.
Analysts also noted that the weakening Korean won is contributing to higher imported inflation, especially for energy-related goods. Economists believe these factors could push the BOK toward tightening monetary policy sooner than expected.
At the same time, South Korea’s economy continues to show resilience. The country recorded a stronger-than-expected 1.7% economic expansion in the first quarter of 2026, supported by strong semiconductor exports and stable domestic demand.
Economists now expect the Bank of Korea to revise its 2026 GDP growth forecast higher than the previous 2.0% estimate. Many analysts believe stronger economic growth gives the central bank enough room to consider rate hikes later this year and into 2026.
Among economists surveyed, most expect the BOK’s base rate to reach 3.00% by the end of 2026, reflecting expectations that inflation and economic growth will remain elevated.
