Seoul, March 26 (QNA) - Market interest rates could face significant upward pressure if the conflict in the Middle East persists, the Korean central bank said Thursday.

"If tensions in the Middle East persist, market interest rates could face upward pressure as rising oil prices intensify supply-side inflationary pressures and heighten concerns about global monetary tightening," said the Bank of Korea (BOK) in its latest financial stability report.

"Disruptions to the energy supply chain could lead to higher international energy prices, affecting both inflation and economic growth," the report added, noting that heightened risk-aversion sentiment would likely amplify volatility across the domestic foreign exchange and financial markets.

South Korea relies on imports for about 98% of its fossil fuels and obtains roughly 70% of its crude oil from the Middle East, according to Yonhap News Agency.

The conflict in the Middle East has driven global oil prices higher due to the effective closure of the Strait of Hormuz, disrupting international supplies.

"If Middle East tensions persist, foreign investors' preference for safe-haven assets would likely continue, which could limit any easing of volatility in stock prices and exchange rates," the report said.

The BOK also cautioned that a prolonged crisis could affect corporations, with higher energy costs potentially reducing profitability and weakening debt repayment capacity for vulnerable firms.

At its latest rate-setting meeting in February, the BOK kept its benchmark interest rate steady at 2.5%, marking the sixth consecutive hold. Analysts expect the central bank to maintain a prolonged pause to support financial stability. (QNA)