BOK Nominee Shin Says Price, Financial Stability Underpin Economic Growth

Confirmation Hearing for BOK Governor Nominee

"For Now, Inflation Takes Priority Over Growth"

"High Dollar-Won Rate Was a Case of the Tail Wagging the Dog"

Shin Hyun-song, nominee for Bank of Korea governor, said on Aug. 15 that he would prioritize inflation over growth if the two goals come into conflict under current conditions. He also rejected the market's characterization of him as a "pragmatic hawk," saying it is not desirable to divide policymakers into simple hawk-or-dove categories.

Shin made the remarks at a confirmation hearing before the National Assembly's planning and finance committee. Asked how he would prioritize competing policy goals as the war in the Middle East weighs on growth and lifts prices, he said inflation would take precedence, especially in an economy like South Korea's that is highly sensitive to oil prices.

He also pushed back on the suggestion that he places less weight on growth than on prices. Price stability and financial stability are the foundation of sustainable growth, he said.

Shin said monetary policy should be used if Middle East risks persist and spill over into core inflation or inflation expectations, creating second-round effects. In written answers submitted to parliament before the hearing, he said the recent rise in prices was driven by a temporary supply shock, making a monetary policy response inappropriate. If the war is prolonged and its impact on prices and the economy expands sharply, however, authorities should respond with a combination of measures including monetary and fiscal policy.

Shin said the BOK's decision on Aug. 10 to hold its benchmark interest rate steady for a seventh straight meeting was well suited to current conditions. Leaving rates unchanged should not be viewed as passive, he added. It reflected strategic patience amid inflation pressure and slowing growth.

On the dollar-won exchange rate, Shin said it had remained at a fairly elevated level for the past several months. Heavy trading through off-balance-sheet derivatives appeared to have created a case of "the tail wagging the dog," he said.

He said that during last April's U.S. reciprocal tariff measures and the unwinding of the yen carry trade two years ago, transactions through off-balance-sheet derivatives were larger than book-based capital outflows. Offshore non-deliverable forward, or NDF, trading also appeared to account for a substantial share this time.

Shin also softened his previously negative view of stablecoins. He said he had been skeptical in the past, but as the prospective head of a central bank, he had concluded that stablecoins could be used in ways that are both complementary to and competitive with deposit tokens.

Addressing controversy over a possible conflict of interest related to his foreign-currency asset holdings, Shin said he had already disposed of more than half and would sell 100% of them in the near term.

Sim Seong-mi, Korea Economic Daily reporter, smshim@hankyung.com