SEOUL — Shin Sung-hwan spent years on the Bank of Korea’s monetary policy board arguing for lower interest rates. On his way out, he delivered a stark warning. Control inflation first. Even if it hurts growth. Even if it brings real pain to parts of the economy.
The comments, made at a farewell press conference Monday, come as South Korea grapples with a fresh energy shock from conflict in the Middle East. Oil prices have surged. Consumer prices hit a 21-month high in April. And the central bank’s next rate decision looms in two weeks.
“If there is a possibility of it deviating from our target of 2%, especially towards the upward direction, it is appropriate to focus on inflation, even if there is a significant trade-off between growth and inflation,” Shin told reporters, according to Reuters.
Short. Direct. And notable. Because Shin has long been viewed as one of the board’s doves. He dissented multiple times last year to push for rate cuts when others held steady. The Bank of Korea delivered four quarter-point reductions from October 2024 through May 2025, bringing the base rate to 2.50%. It has held there since.
Now the landscape has changed. War in Iran has pushed oil higher. Projections that once eyed $70 a barrel by year-end have climbed toward $90 or more. Spillovers worry policymakers. Producers may soon pass costs to consumers. Secondary effects could intensify.
“If oil prices stay high at around $100 per barrel, it is extremely important to minimise their spillover effects, even if it causes a significant pain to the economy, and that is the Bank of Korea’s mandate,” Shin said. He added that inflationary pressure remains significant and uncertainty about future prices is very high. Discussing rate cuts now feels burdensome.
His shift carries weight. Outgoing members rarely command headlines. Yet Shin’s remarks align with a broader hardening in tone at the central bank. Just days earlier, Senior Deputy Governor Ryoo Sang-dai signaled it was time to consider rate hikes. Growth looks unlikely to fall much below 2%. Inflation, however, could exceed 2.2%. Forward guidance should turn more hawkish at the May 28 meeting, he said. That session will mark the first for new Governor Shin Hyun-song, who took office in April.
From easing cycle to potential tightening
The pivot reflects real pressures. April consumer inflation reached 2.6% year-over-year, per data cited across reports. Core measures also climbed. The Iran conflict has disrupted energy flows. South Korea, heavily reliant on imports, feels it acutely. Nearly 70% of its crude passes through vulnerable shipping lanes.
Yet growth tells a different story. Chip exports, fueled by artificial intelligence demand, powered the economy to its fastest pace in nearly six years last quarter. That sector represents roughly 10% of gross domestic product. Its strength buoys headline figures. But Shin voiced concern that the remaining 70% to 80% of the economy still struggles. Semiconductor gains bring limited employment impact and uneven trickle-down effects. Polarization persists.
Ryoo, in comments reported by Reuters on May 4, downplayed over-reliance risks. The current chip cycle could last longer than past ones. Other sectors provide support, unlike in Taiwan. Still, both officials flagged the won’s excessive undervaluation. Even after accounting for rate gaps with the U.S., the currency looks too weak. Shin expects it to stabilize lower over time.
These views don’t emerge in isolation. Minutes from the April meeting, covered by Reuters on April 28, showed the board opted for a cautious, wait-and-see stance amid war uncertainty. One member then already called for shifting focus from financial stability toward easing inflationary pressure. The new governor has stressed flexible, balanced policy. Price stability comes first, but he acknowledges supply shocks complicate the task.
Markets have taken notice. Yields on government bonds moved after Ryoo’s remarks. Expectations for a rate increase — perhaps as soon as July — have grown. Analysts cited in Reuters coverage suggest the central bank could signal a policy change this month. Multiple hikes, not a single move, may follow.
Shin, wrapping up his four-year term Tuesday, reflected on past choices. He wished he had pushed harder for a cut last August, when conditions seemed right. But he respects collective decisions. The situation then differed sharply from today. “Previously, I issued dissenting opinions for rate cuts because I thought upward price pressure was relatively low,” he explained in remarks detailed by Seoul Economic Daily. “But now the situation is completely different. If I had to make a decision now, I would have been much more concerned about inflation than before.”
His comments extend beyond rates. High household savings rates limit private consumption growth despite headline expansion. Fiscal measures show up in rising Treasury yields. Greater ties to global markets raise risks of herd behavior. Structural reforms, he argued, should address inefficient real estate-focused saving systems that leave households asset-rich but consumption-constrained.
The Bank of Korea faces a classic bind. Supply-driven inflation from energy costs does not respond neatly to interest rates. Tightening could amplify pain in interest-sensitive sectors. Yet letting prices spiral risks unanchoring expectations. Shin’s mandate is clear: minimize spillovers. Accept the trade-off if needed.
Investors and economists will watch the May 28 meeting closely. Governor Shin Hyun-song’s first decision could set the tone for the rest of 2026. Oil at elevated levels. Chip demand holding strong. A currency that may soon find its floor. The central bank must balance these forces.
Shin Sung-hwan leaves with a final message. Price stability defines the institution’s role. Growth matters. But when inflation threatens to break higher, the priority is obvious. Control it. Even at a cost. The board he departs appears increasingly inclined to agree.
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