South Korea's central bank said on Thursday that the benchmark interest rate will remain unchanged, while signaling an imminent hike going forward amid inflationary pressure.

The Monetary Policy Board of the Bank of Korea held the key rate steady at 2.5 percent, marking the 8th consecutive on-hold decision since July 2025.

"Given the uncertainties surrounding developments in the Middle East and their spillover effects remain high, the board judged that it would be appropriate to maintain the current level of the base rate while assessing developments in the conflict and their impacts on growth and inflation," the bank said in a statement.

The decision was in line with market expectations, but experts said they anticipate a rate hike during the central bank's next policy meeting in July.

At the meeting this week, five board members supported the decision to stay on hold, while two members voted against the decision and proposed a 25-basis-point rate hike.

"The board will decide the timing of any rate hikes while assessing the extent of the increase in inflationary pressure, the improvement trend in the domestic economy, and financial stability," the bank said.

The underlying message of the central bank's decision was equivalent to a rate hike, said Park Chonghoon, head of the South Korea and Japan research team at Standard Chartered Bank Korea.

Hawkish message

"It was a very hawkish message", Park told China Daily.

Noting it was the first rate-setting meeting chaired by the new central bank governor Shin Hyunsong, who took office in late April, Park said he believed one of the main reasons for the on-hold decision was that the new governor was trying to avoid making a rate hike in his first meeting, opting instead to give a clear signal.

"I think they will hike (the policy rate) in July, and they will highly likely make another hike (later this year)," said Park, adding that further tightening moves could happen next year.

At a news conference on Thursday following the policy meeting, Shin said the need for a rate hike has become clear across all aspects, whether in prices, growth, exchange rates, or real estate, according to Yonhap News Agency.

"Inflation is expected to remain above target for a considerable period, while growth is projected to continue with solid improvement," said Shin.

The bank has pegged its 2026 growth forecast for the country at 2.6 percent, significantly higher than the 2 percent projection made in February.

Driven by higher global oil prices and demand-side pressure, consumer price inflation and core inflation forecasts for this year were also revised upward to 2.7 and 2.4 percent, respectively, with the central bank adding that the future path of inflation is highly uncertain.

If the situation in the Middle East is resolved early, this year's growth rate could exceed 2.6 percent, Shin said, adding that the recent economic growth momentum is not temporary.

kelly@chinadailyapac.com