Shin Hyun-song, the nominee for Governor of the Bank of Korea (BOK), addressed market concerns on Tuesday, stating that he sees no significant issues with the current value of the Korean won (KRW) and emphasized the ample dollar liquidity in the market.
These remarks were made as Shin Hyun-song began preparations for his confirmation hearing before the National Assembly. He was nominated last week to succeed Rhee Chang-yong as the head of South Korea’s central bank when Rhee’s four-year term concludes next month.
“I don’t place excessive importance on the absolute level of the won-US dollar exchange rate. The key is whether the market possesses the capacity to absorb associated risks, and in that regard, there are no major concerns,” Shin stated.
He further added, “Abundant dollar liquidity implies that we don’t need to directly link exchange rate fluctuations with financial instability, as has sometimes been the case historically.”
The Korean won has been trading near the psychologically important level of 1,500 won per US dollar recently. It touched a closing low of 1,517.3 won last week, driven by the escalating conflict involving Iran, which has led to increased global oil prices and concerns about broader economic ramifications.
On Tuesday, the won opened at 1,519.9 against the dollar, marking its weakest level in approximately 17 years.
Shin identified the Middle East crisis and rising global oil prices as primary risks confronting the South Korean economy. He expressed support for potential policy easing measures, including a supplementary budget.
“Policy easing might be necessary given that the situation in the Middle East is adding to existing economic challenges,” he explained. He also suggested that the inflationary effect of the proposed extra budget would likely be limited given its current size and structure.
The South Korean government is seeking to create a 25 trillion won (US$16.39 billion) supplementary budget with the aim of stabilizing the economy amidst the ongoing geopolitical conflict. The National Assembly is expected to vote on the bill by next Friday.
Regarding future monetary policy direction, Shin adopted a cautious approach.
“It is essential to adopt a wait-and-see approach, considering the uncertainties surrounding the evolution and duration of the Middle East situation,” he commented.
Addressing market perceptions that categorize him as a policy hawk, Shin argued that such simplistic labels are not accurate.
“The important thing is to accurately assess overall economic conditions and understand how financial structures interact with the real economy, and then respond flexibly according to the specific circumstances,” he concluded.
