Dove Shin Seonghwan, Ahead of Departure Ceremony, Says "Inflationary Pressures Are Significant at This Time"

If the inflation rate is likely to move further above the 2% target,
priority should be placed on inflation even if it conflicts with growth

As Korea’s financial market advances with WGBI inclusion and offshore won settlement,
foreign excha

Sung-Hwan Shin, a representative dove (proponent of monetary easing) within the Bank of Korea's Monetary Policy Board, held a press conference at the Bank of Korea in Jung-gu, Seoul, on the 11th, one day before his departure ceremony. He stated, "It is quite burdensome to discuss a rate cut at this moment," diagnosing that "inflationary pressures are high."

"The situation is completely different now... If I had to decide now, the focus would be on inflation"

He explained that if the situation is such that there is a high likelihood of moving further away from the target inflation rate (2.0%), it is appropriate to place more weight on inflation, even if it conflicts significantly with economic growth. Although he will not participate in the base rate decision in May, he said that if he were to do so, he would emphasize the considerable inflation concerns. He added that this thinking would also be reflected in the distribution of rate decisions and dot plots.

During his four-year term, Shin cast seven dissenting votes, most of which were for rate cuts. His fundamental stance was that if inflation concerns were not significant, it would be better to ease rates for the real sectors of the economy. Even so, Shin emphasized that there is no question that price stability is the Bank of Korea's top priority. He said, "(In the past,) my dissenting votes for rate cuts were based on the premise that inflation concerns were not significant, but now the situation is completely different. If I had to decide now, I would have considered inflation much more."

Sung-Hwan Shin, Monetary Policy Board member of the Bank of Korea, is speaking at a press conference held on the 11th at the Bank of Korea in Jung-gu, Seoul. Bank of Korea

Economic polarization, a dilemma in rate decisions... Need to consider supplementary tools

Shin recalled that during his tenure as a Monetary Policy Board member, he struggled greatly with the dilemma of "making rate decisions amid economic polarization." He noted, "The growth rate reflects the overall economic performance, but it was difficult when the sector accounting for 10% of the economy was driving overall growth," adding, "70-80% of the economy continues to face difficulties." He explained that while the trade-off between inflation and growth must be considered when making rate decisions, it was challenging to interpret how effective this is within Korea's economic structure.

He also pointed out that going forward, it will be important to continue considering how monetary policy should respond to polarization, and whether there are supplementary tools that can be used in such situations, even if monetary policy cannot solve everything. The Bank of Korea currently operates the Bank Intermediated Lending Facility (BILF), a supplementary tool that provides low-cost funds to commercial banks, enabling them to lend to SMEs and small business owners.

To become a 'high-performance car,' Korea's financial market must also upgrade its 'brakes'

He also stated that as Korea's financial market advances, the foreign exchange authorities must secure policy tools for market stabilization. Shin explained, "Currently, the scale of foreign exchange inflows and outflows in the financial market is overwhelmingly larger than those related to real economic activities such as exports and imports," and "the continued undervaluation of the won since 2024 has been partly caused by capital outflows from the financial market."

He likened Korea's financial market to a car, stating that, thanks to the inclusion in the World Government Bond Index (WGBI), the push for inclusion in the MSCI Developed Markets Index, and the activation of the offshore won settlement market, the market is evolving into a higher-performance vehicle. He pointed out that in order to support this, risk management tools such as upgraded brakes and airbags are necessary, and that the authorities should be equipped with policy tools appropriate for market development.

Shin emphasized, "As the linkages between our financial market and international financial markets strengthen, the risk of capital flights intensifies." He added, "We need to consider what tools are available to stabilize the foreign exchange market and whether the market trusts these tools." He also noted that policymakers should think about what measures can be taken in the event of a severe shock to the financial market. He said, "The stronger the connection with the international financial market, the more 'the wisdom of crowds' can turn into the 'madness of crowds.' We must always be vigilant and monitor such moments, and it is essential to establish long-term contingency plans to cope with an uncertain future where it is difficult to predict what actions can be taken immediately when problems arise."

Sung-Hwan Shin, a Monetary Policy Committee member of the Bank of Korea, is speaking at a press conference held at the Bank of Korea in Jung-gu, Seoul on the 11th. Bank of Korea

The structure where people are burdened by housing, save more, and struggle through life must change

He also argued that Korea needs to establish a system that can transform the current structure of high net saving rates, which results in many individuals "living poor and dying rich." He explained, "Korea's household net saving rate is extremely high. While this is partly due to structural and cyclical factors such as longevity and high household debt, the saving rate is excessively high, which means that private consumption is relatively sluggish. To create a foundation for a functioning economy, private consumption is necessary. We need to make Korea's saving system more efficient." He continued, "A house is a form of saving, but people maintain this separately from their pension and struggle through their later years, only to leave a large asset in the form of a house when they pass away. I believe we need a system that enables people to 'live well and leave well' by making saving more efficient."

Regarding the impact of the new leadership of U.S. Federal Reserve Chair Kevin Warsh on the Korean economy and the Bank of Korea's monetary policy, he said, "If the Fed reduces its balance sheet and tightens the supply of dollars, even though it will proceed very cautiously, such global dollar tightening would have a significant impact on nearly every country." As for the future direction of the exchange rate, he said it is difficult to predict, but he expects it to move toward greater stability compared to now. Shin said, "The most important reason for the won's depreciation compared to the past is interest rate inversion, but even so, I agree that the current exchange rate is excessively undervalued."

This content was produced with the assistance of AI translation services.