Bank of Korea governor nominee Shin Hyun-song told parliamentarians on Wednesday that the central bank could move to tighten policy if supply-side shocks tied to the Iran war produce extended inflationary pressure. He framed the situation as a test for monetary policy, linking the duration of the conflict to shifts in inflation dynamics.
Speaking during his confirmation hearing in Seoul, Shin said the impact of a prolonged Middle East conflict could push inflation higher. He cautioned that unresolved disruption would not only lift headline prices but could seep into inflation expectations and core inflation, amplifying broader price pressures. "If it persists for a long time, it gets reflected in inflation expectations and core inflation, and leads to overall inflation, then I believe monetary policy will certainly have a role to play," he said.
The comments arrive against a backdrop of slower economic growth and rising prices in South Korea, which the nominee again tied to fallout from the Middle East conflict. Shin noted that conditions created by those external shocks could require a monetary response if they become entrenched.
On policy settings, the Bank of Korea left its benchmark interest rate at 2.50% on April 10. That decision was the final policy action under the outgoing governor, Rhee Chang-yong, whose term concludes on April 20. Shin's testimony therefore comes at a moment of leadership transition for the central bank and addresses how incoming policy might respond to evolving inflationary risks.
Shin also commented on exchange-rate developments, warning against a "sharp weakening" of the Korean won. He pledged that the central bank would step in if volatility in the currency market became excessive, marking a shift from his earlier neutral position on the won. That stance signals a willingness to use intervention as a tool to limit disorderly moves in the exchange rate.
Taken together, the nominee's remarks emphasize two potential policy levers the central bank could deploy if external shocks persist: tighter interest-rate policy to counter broadening inflation, and FX intervention to contain disorderly currency declines. Shin framed both as contingent on the persistence and severity of the shocks rather than as immediate commitments to action.
Context limitations: The nominee's statements reflect conditional responses to the course of the Middle East conflict and resulting domestic price and currency pressures. They do not specify timing or concrete thresholds for action.