Koo Yun-cheol, Deputy Prime Minister and Minister of Economy and Finance, and Shin Hyun-song, Governor of the Bank of Korea (BOK), the two heads of Korea's economic and monetary policy, will hold an unscheduled meeting on the 23rd. The introductory meeting comes just three days after Shin's inauguration, making it the earliest such meeting on record. With concerns growing over slowing growth and resurgent inflation due to the prolonged Middle East war, the market is closely watching the first meeting between the heads of fiscal and monetary policy.
According to government sources on the 21st, Deputy Prime Minister Koo is confirmed to meet with Governor Shin at an undisclosed location in Seoul on the 23rd to exchange views on domestic and global macroeconomic conditions. The meeting, intended to congratulate Shin on his inauguration, marks the earliest encounter ever held between a deputy prime minister and a BOK governor. The previous record was set on June 13, 2017, when then-BOK Governor Lee Ju-yeol met with Deputy Prime Minister Kim Dong-yeon four days after his inauguration.
While the tone has varied across administrations, the two institutions — generally viewed as being in a tense relationship — have moved to arrange a meeting so quickly because of the severity of domestic and global economic conditions. With the prolonged Middle East war driving up international oil prices and domestic inflation rising again, led by petroleum products, downward pressure on this year's growth outlook is mounting.
Earlier, the Organisation for Economic Co-operation and Development (OECD) lowered Korea's growth forecast for this year to 1.7 percent from 2.1 percent, a 0.4 percentage-point cut, in its March interim economic outlook. Overseas investment banks including Citi (2.2 percent) and Barclays (2.1 percent) also revised their forecasts downward by 0.1 to 0.2 percentage points.
Inflation is also stirring again. Although the government is curbing fuel prices through a petroleum maximum price system, the consumer price index in March rose 2.2 percent year-on-year, rebounding for the first time in four months. Prices had hovered around 2 percent since October last year and stabilized at 2.0 percent for two consecutive months in January and February this year, but began climbing again in March as the Middle East situation started to be reflected.
Analysts say the meeting carries significant symbolic weight, as it allows the heads of fiscal and monetary policy to align their views on the economy and inflation and reaffirm their commitment to policy coordination. Shin, who has advocated curbing inflation at the Bank for International Settlements (BIS), has been classified in the market as a "pragmatic hawk." Since his nomination as governor in late March, he has emphasized flexible monetary policy, saying, "A dichotomous approach of classifying policymakers as hawks or doves is not desirable." However, the market still holds the view that tensions with fiscal authorities over future rate hikes are likely to emerge.
"In a period of uncertainty like the present, simply confirming the will for coordination among policy authorities sends a meaningful signal for market stability," said Kang Tae-soo, a visiting professor at KAIST's Graduate School of Finance. "The meeting between the heads itself can deliver a stabilizing message to the foreign exchange market."
However, some observers say it is too early to be optimistic about the relationship between the two chiefs. The deputy prime minister, who oversees macroeconomic policy as a whole, must prioritize growth and employment, while the BOK governor, as the head of monetary authority, must prioritize price stability, meaning the two are structurally required to reconcile opposing objectives. Depending on whether the emphasis is placed on growth or on prices, tensions between the two institutions are unavoidable.
In the past, conflicts between the two sides have indeed surfaced over rate hikes. A notable example is the "attendance and speaking rights" controversy that erupted in early 2010 during the Lee Myung-bak administration. In January 2010, then-First Vice Minister of Strategy and Finance Huh Kyung-wook attended a meeting of the Monetary Policy Board, which decides the base rate, and exercised speaking rights. It was the first time in 11 years, since 1999, that a government official had attended the board. At the time, the government maintained that rate hikes should be approached cautiously given the sluggish economic recovery following the global financial crisis, while the BOK countered by stressing the need for "rate normalization." The vice finance minister subsequently attended the Monetary Policy Board more than 30 times over three years until the end of 2012, arguing for caution on rate hikes. The attendance and speaking right has since become effectively defunct amid controversy over infringing on the BOK's independence.
On the early meeting between Deputy Prime Minister Koo and Governor Shin, Yang Jun-seok, a professor of economics at Catholic University, said, "Like it or not, the government and the BOK are in a relationship where they must move forward together, so it is necessary to go through a process of confirming each other's policy styles and perceptions of the issues."
