Shin Hyunsong: "Supplementary Budget to Raise Growth Rate by 0.2%P... Majority of Foreign Assets Disposed"

Shin Hyun-song, nominee for Governor of the Bank of Korea, predicted ahead of his confirmation hearing on April 15 that this year's supplementary budget would raise the economic growth rate by 0.2 percentage points. He emphasized several times that it is not desirable to mechanically prioritize price stability, and that growth and financial stability should be considered together, showing a less 'hawkish' (preference for monetary tightening) stance than market expectations. He also stated that he has already disposed of a significant portion of his foreign currency-denominated financial assets, which had previously been a matter of controversy, and that he plans to further reduce the proportion of his foreign assets.

Shin Hyun-song, the nominee for Governor of the Bank of Korea, is answering questions from the press as he arrives at the confirmation hearing preparation office set up at Hanwha Financial Plaza in Jung-gu, Seoul, on the 31st of last month.

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According to written answers submitted to the National Assembly's Strategy and Finance Committee regarding Shin's confirmation hearing on April 13, Shin stated, "In the current situation, where upward pressure on prices and downward pressure on growth are both intensifying due to the recent Middle East war, and difficulties in vulnerable sectors are worsening, the supplementary budget will help mitigate the impact of these shocks." He added, "Based on an analysis using the Bank of Korea's model, it is estimated that this supplementary budget will raise this year's growth rate by about 0.2 percentage points."

Regarding criticism that it was inappropriate for a central bank governor to hold a large proportion of financial assets in foreign currencies, Shin responded, "I have already disposed of a significant portion of my foreign currency-denominated financial assets. I plan to further reduce the share of foreign assets." He emphasized, "I feel a strong sense of responsibility as a public official and will conduct myself in a manner that meets the expectations of the public."

On the topic of major central banks expanding their roles from focusing on price stability to also including financial stability and macroprudential management after the global financial crisis, Shin said, "Although the importance of the central bank's price stability function has come back into the spotlight after the high-inflation period following the pandemic, financial stability remains crucial because the financial and real sectors are closely linked."

Shin noted, "Through the 2011 amendment to the Bank of Korea Act, the Bank of Korea was given the mandate of financial stability and its function in this area was strengthened." He added, "Going forward, I believe the Bank should continue to perform monetary policy with attention to financial stability, and also further enhance its role in analyzing and strengthening the soundness of the financial system."

In response to a question about the direction of future monetary credit policy, Shin said that the Bank would take a comprehensive view of the entire economy, not just prices, when making policy decisions. He stated, "Basically, as specified in the Bank of Korea Act, price stability should be prioritized, but it is desirable to also operate with balanced consideration of financial stability and growth. Since price stability, growth, and financial stability are closely interconnected, it is not desirable to mechanically prioritize only price stability."

He said, "Currently, due to the Middle East war, volatility in the financial and foreign exchange markets has increased, and both upward risks to prices and downward risks to growth are rising, expanding the trade-offs between policy variables. In addition, there is considerable uncertainty related to the progress of negotiations between the United States and Iran, and the movements of international oil prices. Therefore, future monetary policy should be determined with care and flexibility, closely monitoring the development of the situation in the Middle East and its impact on the domestic economy."

Meanwhile, when asked whether he still holds the same view on the proposal to establish a foreign exchange stabilization agency, which was a key point in the joint overseas research published by the Bank of Korea in 2012 entitled "Long-term Proposals to Strengthen the Crisis Response Capacity of the Korean Financial System," Shin replied, "At this time, establishing a foreign exchange stabilization agency is not appropriate." He explained, "Currently, structural vulnerabilities have been greatly improved, as short-term external debt is being restrained and the maturity structure is being improved through policies such as limits on forward position holdings and other foreign exchange soundness measures."

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