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Elevated oil prices may back BOK into corner on rate hike

Published: 11 Mar. 2026, 19:55 Updated: 11 Mar. 2026, 19:59

A driver refuels a truck at a gas station at the Mannam Square rest area along the Gyeongbu Expressway in Seocho District, southern Seoul, on March 11. [NEWS1]

Wild fluctuations in international oil prices appeared to ease slightly as prices settled back into the range of $80 per barrel on Wednesday after nearing $120 a barrel on Monday, but prices remain elevated compared to prices predating the Middle East conflict, casting a specter of uncertainty for the central bank's monetary policy outlook.

West Texas Intermediate crude futures traded at $84.74 per barrel on the New York Mercantile Exchange in the early hours of Wednesday. A day prior, the price in Korea moved with midday trading in New York to plunge 11.32 percent on Tuesday, settling at $83.45 per barrel after falling as low as $76.73 per barrel in intraday trading.

Oil prices declined after U.S. President Donald Trump signaled the possibility of an early end to the conflict, raising expectations that global supply could stabilize. The potential release of strategic petroleum reserves by the Group of Seven members also added downward pressure on prices.

Despite the pullback, international oil prices remain well above prewar levels.

In a report released Tuesday, the U.S. Energy Information Administration projected that “We forecast the Brent crude oil price will remain above $95 [per barrel] over the next two months, before falling below $80 [per barrel] in the third quarter of 2026 and around $70 [per barrel] by the end of the year."

Price displays are turned off at a gas station in Siheung, Gyeonggi, on March 11. [NEWS1]

The forecast suggests prices may remain elevated relative to the per-barrel price in the $60 range seen before the war, a prospect that may weigh on the Bank of Korea's (BOK) stance as higher energy prices risk increasing inflation on higher importing costs.

The BOK last month indicated that it may keep the benchmark interest rate unchanged at 2.5 percent for a considerable period of time, introducing a "dot plot" projection of the Monetary Policy Board's six-month outlook.

However, the instability in the Middle East and the resulting oil price surge have added uncertainty to the inflation outlook.

The BOK has previously raised rates during periods of energy price volatility, such as before the 2008 global financial crisis, during the 2011 Arab Spring uprising and Russia's invasion of Ukraine in 2022.

West Texas Intermediate crude futures prices are displayed on a screen in the trading room of Hana Bank’s headquarters in Jung District, central Seoul, on March 10. [YONHAP]

“If the conflict continues until next month’s Monetary Policy Board meeting, conditions could emerge that may prompt the BOK to consider raising rates,” said Kang Seung-won, an analyst at NH Investment & Securities.

Some analysts say the likelihood of a rate hike remains limited because persistently high oil prices could slow economic growth, which would likely disincentivize the central bank to tighten monetary policy.

Interest rate expectations abroad are also shifting. Markets now expect the U.S. Federal Reserve to cut interest rates only once this year, The Wall Street Journal reported on Monday.

Onlookers also wager that the European Central Bank could move to raise interest rates later this year. The bank has kept its policy rate unchanged since a cut in June of last year.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM WON [[email protected]]