BOK governor nominee signals prolonged rate pause as policy seen near neutral level
Shin Hyun-song, Bank of Korea governor nominee, arrives at his office at Hanwha Investment & Securities Plaza in Seoul to prepare for his confirming hearing, Wednesday. Yonhap
Bank of Korea (BOK) Gov. nominee Shin Hyun-song suggested that Korea’s benchmark interest rate is currently around the midpoint of the neutral range, according to an opposition lawmaker on Sunday.
The remarks imply that, under his leadership, the central bank is likely to maintain its pause in rate adjustments for the time being, adopting a measured approach that considers both inflation and growth rather than pursuing abrupt policy shifts.
In a written response to an inquiry from Rep. Chun Ha-ram of the minor Reform Party, Shin said the current policy rate of 2.5 percent “lies near the middle of the neutral rate range estimated by the BOK using a range of models.”
The neutral rate is generally understood as the theoretical level of interest that neither fuels inflation nor constrains economic growth, and is typically derived through model-based analysis.
Shin, who served as the head of the monetary and economic department at the Bank for International Settlements, had been widely viewed as leaning hawkish, largely due to his prior emphasis on financial stability and proactive inflation control. His nomination was even interpreted by some as a signal that the Lee Jae Myung government favors tighter monetary policy.
However, his assessment is seen as broadly consistent with prevailing views, given that the BOK has generally estimated the neutral rate in the 2 to 3 percent range.
As long as the current policy rate is regarded as being within that range, it is likely to be maintained for a considerable period unless there are meaningful changes in inflation or growth conditions. This suggests that the need for a sharp shift in the monetary policy stance remains limited.
Shin also expressed a cautious view on the need for further rate hikes.
“Given its broad impact on the economy, the benchmark rate cannot be set based solely on financial stability considerations, but must take into account both inflation and growth,” he said. “When tensions among policy objectives intensify, monetary policy alone may fall short. In such cases, a balanced mix of tools, including macroprudential measures, is necessary.”
His remarks are seen as reflecting a situation in which geopolitical tensions in the Middle East are simultaneously pushing up inflation while weighing on growth. In such an environment, where both tightening and easing carry risks, the central bank under his leadership is expected to maintain a cautious and balanced policy stance.
Bank of Korea Gov. Rhee Chang-yong speaks during a press briefing following a Monetary Policy Board meeting at the central bank’s headquarters in Seoul, Friday. Yonhap
On Friday, the BOK’s Monetary Policy Board left the benchmark rate unchanged at 2.5 percent for the seventh consecutive time, in a unanimous decision by all seven members, including current Gov. Rhee Chang-yong.
Rhee, whose term ends on April 20, said the board refrained from discussing any rate hike or cut due to persistent uncertainty surrounding the Middle East, opting instead to closely monitor developments and their economic impact.
Meanwhile, Shin’s confirmation hearing at the National Assembly is scheduled for Wednesday.
Lawmakers are expected to focus on his views on exchange rate stability and the broader direction of monetary policy, particularly as the won-dollar rate continues to rise. His overseas assets and his son’s foreign citizenship are also likely to be key issues.
According to his disclosure, Shin reported total assets of about 8.24 billion won ($5.5 million) held by himself, his spouse and his eldest son. Of that amount, 4.57 billion won, or 55.5 percent, consists of overseas financial assets and real estate.
His spouse is a U.S. citizen, while his son, born in 1996, holds British citizenship.