BOK governor nominee: "No major concern over current FX level… Dollar liquidity is solid"

"Supplementary budget will have a very limited impact on prices"

"A hawk–dove binary is not desirable"

Hyun Song Shin, nominee for governor of the Bank of Korea (BOK), said on the 31st, "I don’t attach much significance to the current exchange-rate level itself. We are looking at how much risk the exchange rate can absorb, so in that sense there is no major concern."

Shin was asked by reporters about the exchange-rate situation as he went to work for the first time that day at the office set up to prepare for his confirmation hearing at Hanwha Finance Plaza on Sejong-daero, Seoul. He replied, "Given that dollar liquidity is currently solid, it doesn’t seem necessary now to directly link the exchange rate with financial instability as in the past." The won–dollar exchange rate approached KRW 1,530 intraday.

Shin pointed to the Middle East situation and rising oil prices as immediate risk factors for the Korean economy. "Higher oil prices are putting upward pressure on inflation and creating downside risks to growth," he said, emphasizing that "there remains significant uncertainty about how the Middle East situation will unfold and how long it will last."

However, he assessed that there is little risk of the weaker won becoming an external risk factor for the Korean economy. "When the exchange rate is high, people often worry about dollar liquidity or capital outflows, but while the exchange rate is elevated, dollar liquidity is quite strong," he said. "With foreign investors coming in and investing in the bond market through FX swaps, dollar funding is fairly abundant," he explained.

He also viewed the supplementary budget (hereafter the extra budget) positively, saying, "As difficulties for vulnerable sectors intensify due to the Middle East situation, I think it is also necessary to provide policy easing." He added, "Given the scale and design of the extra budget announced so far, I believe its impact in terms of adding to inflationary pressure will be very limited."

On the policy direction for the benchmark interest rate and other monetary policy issues, he did not give a definitive answer, saying, "Given the uncertainty over how the Middle East situation will develop and how long it will persist, we will have to watch for a bit." He added, "Because monetary policy across central banks is interconnected, we will also continue to watch the path of monetary policy in other advanced economies."

Regarding the market’s characterization of him as a hawk (favoring monetary tightening), he said, "It is not desirable to divide things into a binary of hawk or dove," adding, "What matters is to read the overall economic flow well and, at the system level, fully understand how the financial structure and the real economy interact, and what effects that process has, and then respond flexibly depending on the situation."

On the overseas private credit market—where concerns about financial risks are growing as redemption suspensions and other incidents have occurred recently in the U.S.—he said, "The size of the private credit market is less than $2 trillion, which is small compared with other sectors such as banks," adding, "Considering its share of the overall system, it doesn’t seem to be at a level that warrants major concern."

As for Rhee Chang-yong, the current BOK governor, he said, "I express my respect and gratitude to Governor Rhee for having led the BOK successfully over the past four years," adding, "There are also a great many achievements that Governor Rhee has made." Asked whether he would continue the current governor’s practice of releasing a six-month interest-rate dot plot, he demurred, saying, "It is difficult to answer from the standpoint of a nominee." He added only that "communication with the market is the transmission channel through which monetary policy affects the economy, and how to design and operate it is an important issue."

Asked whether he had met separately with President Lee Jae-myung either before or after being nominated as BOK governor, he replied, "I have not."

Park Subin, Hankyung.com reporter waterbean@hankyung.com