SEOUL, May 11 - An outgoing member of South Korea's seven-member monetary policy board said the central bank should prioritise fighting inflation as energy costs rise in the wake of the war in Iran.
Speaking at a press conference the day before his term ends on Tuesday, Shin Sung-hwan said policymakers should be prepared to focus on inflation control if there is a risk of inflation deviating upward from the central bank's 2% target. "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," he said.
Shin has been viewed as a policy dove on the monetary policy board and has recorded dissenting votes in favour of interest rate cuts at several meetings since the Bank of Korea last cut rates in May 2025. On Monday he said the recent surge in oil prices triggered by the Iran war has made it extremely difficult to contemplate rate reductions, and that the central bank's primary responsibility should be to contain inflation even at the cost of hardship for some sectors.
He cautioned that if oil remains around $100 per barrel, it is vital to limit the spillover effects, "even if it causes a significant pain to the economy, and that is the Bank of Korea's mandate," he said.
Consumer inflation accelerated to a near two-year high of 2.6% in April, a development that has increased expectations of possible interest rate increases later in the year to rein in rising price pressures.
Last month the central bank decided to keep interest rates unchanged and described a wait-and-see stance as appropriate, citing heightened uncertainty from the Iran war and the need to monitor its effects on both growth and inflation. The Bank of Korea's next policy meeting is scheduled for May 28.
Shin also addressed the current structure of South Korea's growth, noting that a boom in demand for AI-related chips has been a significant driver of robust economic expansion. He said that this chip demand upswing is likely to persist for another one to two years, but expressed concern about the outsized influence of a single sector that accounts for roughly 10% of gross domestic product on the headline growth figure.
Finally, Shin said he concurred with the assessment that the South Korean won is excessively undervalued, even after factoring in interest rate differentials with the United States.
Context and implications
The departing board member framed the Bank of Korea's mandate as one that requires decisive focus on price stability when inflation risks rise. His comments underline tensions the central bank faces between sustaining growth and preventing inflation from drifting above target amid external energy shocks and concentrated sectoral growth.