Markets are closely watching whether Bank of Korea (BOK) governor nominee Shin Hyun-song will raise interest rates as the economy faces mounting pressure from rising oil prices and a weakening won, economists and analysts said Tuesday.
Shin, widely seen as a pragmatic "hawk," is expected to lean toward rate hikes to contain inflationary pressure, though not immediately after taking office in April, they said.
Shin Hyun-song, nominee for Bank of Korea governor / Courtesy of Cheong Wa Dae
"Shin is considered hawkish, but appears cautious about preemptive tightening. Early in his term, he will likely assess external conditions such as the Middle East situation and oil prices before making decisions," said Joo Won, head of research at the Hyundai Research Institute.
"It's clear the rate-cut cycle is over. While a hike will likely come at some point, the timing will be a key consideration for the incoming BOK chief," Joo added.
The analyst also said a rate hike as early as May appears unlikely, as it could undermine the government's planned 25 trillion won ($16.6 billion) supplementary budget aimed at cushioning the economic fallout from the Iran conflict.
Kim Jin-wook, chief economist at Citibank Korea, did not rule out a "hawkish" signal early in Shin's leadership.
"A hawkish signal could come as early as the Monetary Policy Board meeting in May, which Shin is expected to chair for the first time," Kim said in his report. "If he sees clear signs of inflation spillovers and loose financial conditions driven by excess liquidity, he is likely to turn toward tightening."
Kim added that Shin's nomination adds weight to Citibank's earlier forecast that the BOK may raise its policy rate by 25 basis points in both July and October.
The benchmark rate is widely expected to be held at 2.50 percent at the April 10 Monetary Policy Board meeting — the last under the current leadership of Gov. Rhee Chang-yong — as financial uncertainties stemming from the Middle East conflict persist.
Source: Korea Times News
