Shin Hyun-song, nominee for Bank of Korea governor, has stated that he would prioritize price stability when policy objectives of inflation control and economic growth conflict. At the National Assembly confirmation hearing on the 15th, responding to questions about the Middle East situation, he said, "If it persists for a long time and gets reflected in inflation expectations and core prices, leading to overall inflation, then monetary policy will certainly have a role to play." This statement aligns with principle, given that Article 1, Paragraph 2 of the Bank of Korea Act stipulates price stability as the foremost objective of monetary and credit policy. Shin said, "I am deeply sorry for causing public concern over personal matters," adding, "I will work solely for Korea and the Korean people."
If Shin assumes the position of BOK governor, he will face the critical challenge of responding to inflation from the early days of his tenure. Import prices in March surged 16.1% month-on-month, the largest increase since the 1998 foreign exchange crisis. The rise in crude oil prices in contract currency terms (83.8%) reached the highest level in 52 years and 2 months since the first oil shock of 1974. The surge in import prices will clearly push up consumer prices with a time lag. Yet raising the base rate is also difficult. With the government proceeding with supplementary budget execution, a rate hike could cause discord between monetary and fiscal policy. Household debt is another major burden. As Shin pointed out, financial stability must also be considered simultaneously in a situation where appropriate policy tools are lacking.
In the current policy environment compounded by the exogenous variable of the Middle East war, uncertainties could grow even larger. The nominee may face the dilemma of potential stagflation and raising interest rates amid economic recession. In such a scenario, the political sphere could apply brakes on rate hikes while pushing expansionary fiscal policy, or demand an expanded role for the BOK. Hardships in the people's livelihoods and financial market instability are also expected to act as pressure factors.
The BOK governor must protect the central bank's independence and principles. If he hesitates and misses the right timing for monetary policy, the aftermath could be amplified. When former Federal Reserve Chairman William McChesney Martin said, "The Fed's job is to take away the punch bowl just as the party gets going," he was speaking to the heavy responsibility of a central bank chief. Shin should make clear the principle that price stability and financial stability are prerequisites for sustainable growth, and uphold this principle unwaveringly under any circumstances.
