SEOUL, May 11 (AJP) — Inflation has become increasingly worrisome and is likely to dominate upcoming monetary policy discussions at the Bank of Korea, outgoing Monetary Policy Board member Shin Sung-hwan said Monday, in a notable hawkish turn from one of the central bank’s most dovish voices.
Shin, whose term ends Tuesday, admitted during a press conference that he had previously favored rate cuts, but said that if he were still to remain on the board, he would now be more concerned about inflation risks.
Shin had been the sole dissenter advocating a rate cut when the BOK held its benchmark interest rate steady in January, April, August, October and November last year.
“Inflation is always the policy priority,” he said, arguing that central banks should prioritize price stability over growth, particularly when inflation risks drifting above the BOK’s 2 percent target.
He warned that if oil prices remain elevated through year-end, secondary inflationary pressures across the broader economy would become unavoidable, making the fight against inflation more difficult than initially expected.
Shin identified the surge in global crude prices following the Middle East conflict as the single biggest variable facing policymakers.
“We initially expected oil prices to stabilize around $70 per barrel by the end of this year, but under the current situation, it now appears likely to hover closer to $90,” he said.
Brent crude climbed as high as $105 a barrel during intraday trading Monday, roughly 50 percent above prewar levels.
Since joining the board in May 2022, Shin had been widely viewed as a representative dove within the committee.
During his tenure, he issued seven dissenting votes in favor of rate cuts. Even as former Governor Rhee Chang-yong maintained a cautious policy stance, Shin consistently argued for easing to support weak domestic demand and relieve pressure on the real economy.
But he said the environment had shifted rapidly in recent months.
“Just as the housing market was already making it difficult to lower rates, the Middle East situation deteriorated immediately afterward,” Shin said. “At this point, it is not desirable to add inflationary pressure through a rate cut.”
Shin also described “polarization” within the South Korean economy as the most difficult challenge during his tenure.
“Economic growth represents the overall performance of the economy, but now we have a situation where a sector accounting for roughly 10 percent of the economy determines the headline figure,” he said, referring to the growing dominance of the semiconductor sector.
He warned that disparities across industries have widened to the point where appropriate interest-rate levels differ sharply depending on the sector.
In the past, strong growth in leading industries generated broader trickle-down effects across the economy, Shin said, but that transmission mechanism has weakened considerably. As a result, higher interest rates risk placing even greater burdens on already struggling sectors.
Regarding the recent rise in government bond yields, Shin said a combination of surging long-term U.S. Treasury yields and mounting inflation expectations had contributed to the move.
“Long-term U.S. interest rates reflect concerns over inflation expectations,” he said, adding that similar concerns are also likely influencing the rise in South Korean government bond yields.
Shin is not the only BOK official signaling a more hawkish shift.
“We need to stop thinking about lowering the benchmark interest rate and begin considering the possibility of raising it,” Ryoo Sang-dai said earlier this month during a press conference at the Asian Development Bank annual meeting in Samarkand, Uzbekistan.
Ryoo added that clearer signals regarding the BOK’s future policy direction could emerge during the May monetary policy meeting.
Bond prices continued to fall amid a growing atmosphere for an interest rate hike. The yield on the three-year government bonds closed at 3.598 percent, up 2.9 basis points, while the ten-year yield finished at 3.950 percent, up 4.1 basis points.
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