Shin Hyun-sung, Governor of the Bank of Korea, stated that a return to an ultra-low interest rate environment is unlikely. He emphasized the need for policy responses in preparation for a high-growth, high-interest rate environment, as the South Korean economy is expected to maintain a growth rate in the 3% range next year, following this year's performance.
During a National Assembly audit on October 23, Shin agreed with Democratic Party lawmaker Kim Tae-nyeon’s assertion that it would be difficult to revert to the ultra-low interest rates of the past.
When Kim argued that economic policies should be based on the premise of prolonged high interest rates rather than solely expecting a decline in rates, Shin reiterated his agreement. He stated, “We will implement policies effectively in preparation for a future of high growth and high interest rates.”
Shin maintained an optimistic outlook on future growth. In response to a question from Democratic Party lawmaker Oh Gi-hyung regarding the likelihood of next year's economic growth rate exceeding the Bank of Korea's August forecast of 2.9% and entering the 3% range, Shin replied, “Yes.”
He did not provide specific figures for this year's growth rate forecast but noted that the Organization for Economic Cooperation and Development (OECD) has raised its growth forecast for South Korea to 3.7%, indicating a stronger growth trend than previously anticipated.
Regarding the potential rebound of the potential growth rate, he described it as “a very important inflection point.” The Bank of Korea plans to release a working paper with newly estimated potential growth rates before the end of the year.
Shin also left open the possibility of further strengthening of the won, stating, “I believe there is still room for the won to strengthen further.”
When asked whether the won-dollar exchange rate could fall to the mid-1,200s, he did not specify a level but explained that the won was unusually undervalued earlier this year based on the effective exchange rate and is currently in a normalization process.
He positively assessed the price stabilization effects of the maximum oil price system, explaining that it has helped reduce inflation by 0.6 percentage points by preventing the pass-through of rising oil prices to other goods.
Considering fiscal conditions, he indicated that the system could be maintained for the time being but suggested that it is not a long-term solution, implying the need for temporary operation.
Additionally, Shin emphasized the importance of coordination between fiscal and monetary policies to address economic polarization and issues faced by vulnerable borrowers. He stated, “South Korea is particularly in a situation of severe polarization,” and stressed that fiscal and monetary policies must work harmoniously to support vulnerable borrowers.
* This article has been translated by AI.
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