Shin Hyun Song takes an oath at the National Assembly in Seoul on April 15. Photo by SeongJoon Cho /Photographer: SeongJoon Cho/Bloo Article content
(Bloomberg) — South Korea’s central bank governor nominee Shin Hyun Song warned that soaring oil prices and a weaker won are likely to push inflation higher, while weighing on economic growth, highlighting the policy challenges he is likely to face at the start of his tenure.
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Speaking at his parliamentary hearing Wednesday, Shin said external uncertainty remains elevated, citing as key risks the ongoing tensions in the Middle East, higher global energy prices and shifting policy paths in major economies.
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“Geopolitical tensions in the Middle East remain elevated, and global oil prices are still significantly higher than before the war, while risks also persist from the global trade environment and major economies’ monetary and fiscal policies,” Shin told lawmakers. “As a result, upward pressure on inflation and downward pressure on growth in the domestic economy are increasing.”
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He signaled that price pressures, which had remained relatively contained in March, are likely to build as higher oil prices and exchange-rate weakness feed through the economy. At the same time, growth is expected to fall short of earlier projections, even as strong semiconductor demand and a supplementary budget provide some support.
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Import prices jumped 16.1% in March from a month earlier for the biggest jump in nearly three decades as oil prices soared, according to a BOK report released earlier in the day.
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Still, Shin downplayed the likelihood of stagflation, indicating that while inflation is set to rise and growth may slow, the risk of a simultaneous prolonged downturn and high inflation remains limited.
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He also cautioned against excessive volatility in the currency, saying sharp or disorderly moves in the won are undesirable.
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“Amid heightened uncertainty in economic conditions, I will conduct monetary policy in a way that fulfills the Bank of Korea’s core mandate of maintaining price and financial stability, while supporting the economy’s stable growth,” Shin said.
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Digital Assets
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Shin also addressed the role of stablecoins, signaling a more nuanced stance than in the past. He acknowledged that he had previously been skeptical of stablecoins and crypto assets, but said his views have since evolved.
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He said stablecoins and deposit tokens based on central bank digital currency could be used in both complementary and competitive ways within the broader monetary ecosystem, depending on their use.
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While reaffirming his view that any won-denominated stablecoin issuance should, for now, be anchored in the banking sector, given banks’ relative strength in customer verification, he stressed that this doesn’t necessarily mean banks must take the lead. The suggestion reflects the current reality that banks are best positioned to handle know-your-customer requirements, he said.
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Regarding market views describing him as a “practical hawk,” he said he doesn’t agree with that characterization, adding that such binary labels are not appropriate.
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If confirmed, he said he would conduct monetary policy flexibly to balance price stability and financial risks, while maintaining coordination with fiscal authorities without compromising the central bank’s independence.
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—With assistance from Seyoon Kim and Shinhye Kang.
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(Updates with Shin’s comments on stablecoins.)
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https://financialpost.com/pmn/business-pmn/bok-governor-nominee-flags-inflation-risks-excess-won-moves
