Veteran Crisis Caller Shin May Give Bank of Korea a Hawkish Tone

Hyun Song Shin, the longtime Bank for International Settlements heavyweight now nominated to take the helm of the Bank of Korea, is known for a keen focus on financial market stability and his ability to spot trouble early.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Hyun Song Shin, the longtime Bank for International Settlements heavyweight now nominated to take the helm of the Bank of Korea, is known for a keen focus on financial market stability and his ability to spot trouble early.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Robin Brooks, a senior fellow at the Brookings Institution, recalled an understated comment over dinner from Shin back in 2022, that speaks to the mix of quiet delivery and awareness that is heading to Seoul from BIS headquarters in Basel, Switzerland. “Have you looked at the gilt market? It looks worrying,” Shin said, according to Brooks in a social media post. It took another three weeks for Brooks to realize the full extent of the risks Shin was pointing to as the gilts selloff triggered a crisis in the UK pension sector following former UK Prime Minister Liz Truss’s raft of unfunded spending measures. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Those characteristics of foresight and financial system scrutiny will be in high demand should he be confirmed as the new central bank chief to take over from Rhee Chang Yong in April. Shin would take over monetary policy in a lopsided economy that is heavily reliant on tech sector exports while financial stability is threatened by a rising mountain of household debt as families try to get a foothold in a soaring property market.The Iran conflict adds an extra layer of global uncertainty to the mix, a factor that risks heating up inflation while weighing on growth for a nation dependent on energy imports from the Middle East.Economists say Shin will likely lead to a more hawkish policy tone at the BOK based as much on financial risks as concerns over inflation. He is likely to favor more macroprudential measures and is likely be more cautious about leaning on lower interest rates to goose the economy when financial risks are present, they say.Barclays economist Bumki Son said Shin is likely to adopt an orthodox inflation-targeting stance, while emphasizing financial stability. His BIS work on leverage suggests a focus on anchoring inflation expectations, monitoring global and domestic credit cycles, and limiting financial imbalances, with any policy easing likely to be withdrawn quickly to reduce side effects.Shin’s nomination at a particularly sensitive moment for the economy comes after years of being mentioned as a potential candidate for the top job.Shin is not a typical BOK insider. As economic adviser and head of Monetary and Economic Department at the BIS, he has spent more than a decade shaping how central banks across the globe think about financial stability, liquidity and cross-border risks. The BIS describes him as an “intellectual leader in the fields of banking, international finance and monetary economics.” Before Basel, Shin built his academic career at Princeton University, Oxford University and the London School of Economics. He also served as a senior adviser to South Korea’s president in 2010, helping design financial stability policies and the country’s G20 agenda in the wake of the global financial crisis, another significant shock he hinted at ahead of time. His influence extends beyond traditional macroeconomics. Recent BIS work he co-authored applies machine learning to nearly 20,000 central bank speeches to map out what it calls a “space of economic ideas,” showing how policy thinking evolves and spreads globally. Another project, BISTRO, uses AI-based models to forecast macroeconomic time series, reflecting a push to integrate new technologies into central banking. “He is everything you would want in a central banker: depth of knowledge and extensive policy experience in monetary and financial matters, plus humility,” Gita Gopinath, a former IMF first deputy managing director, wrote on social media following his nomination. “Great choice,” Olivier Blanchard, former IMF chief economist and professor emeritus of economics at the Massachusetts Institute of Technology, said in a brief post on X.Iran Turmoil Shin’s analytical framework was on display in his most recent public remarks. Speaking at a BIS media briefing on March 16, he framed the global impact of the Middle East conflict as a layered and evolving risk.“Given uncertainty about the scale and how long it will last, risks center primarily on renewed concerns about growth and inflation,” Shin said.“The size of the macroeconomic impact will ultimately depend on countries’ exposure to the oil supply disruptions and their energy dependence,” he added, warning that if the conflict persists, a spike in interest rates could pressure rich asset price valuations and rising government financing costs could undermine fiscal sustainability.The language is characteristic: measured, conditional, and focused on how shocks propagate through financial conditions rather than just headline indicators. That approach may soon be tested in one of the world’s most exposed economies. South Korea imports almost all of its energy, with much of its oil and gas passing through the Middle East. The Iran conflict has already begun to reshape the policy outlook, complicating the BOK’s rate path just after it introduced a new six-month forward-guidance framework. BOK board member Lee Soohyung said last week that the bank’s projections of no interest rate changes in February were made without taking the Iran conflict into account, and that it’s now facing upside risks to inflation while growth is subject to downside pressures. Read Also: BOK’s Policy Path Clouded as Iran War Lifts Price, Growth RisksThe central bank held its benchmark rate at 2.5% at its last policy meeting in February, signaling stability under the new guidance system. But rising oil prices, far above the assumptions underpinning its latest forecasts, are now adding pressure to reassess that stance. ‘Pragmatic Hawk’While President Lee Jae Myung’s administration prepares an extra budget to cushion households and businesses from the ripple effects of the Iran war, economists expect Shin to lean toward a cautious but firm policy stance.Citigroup economist Jin-Wook Kim described him as a “pragmatic hawk,” likely to prioritize inflation and financial stability while remaining data-dependent. Citi expects the BOK to resume tightening later this year, with potential rate increases in July and October toward a 3% terminal rate.Shin has previously argued that when inflation risks rise, central banks should act early rather than fall behind the curve, warning that delayed tightening can allow price pressures to become entrenched and more costly to reverse.At the same time, his work suggests monetary policy alone is not sufficient. He has consistently emphasized macroprudential tools, including measures targeting household debt and foreign exchange exposures, as essential complements to interest rate policy.President Lee has repeatedly warned that the property market poses significant risks to financial stability, with elevated household debt and rising home prices seen as key vulnerabilities. The central bank now faces the delicate task of containing inflation without reigniting housing demand, a balance that could shape the direction of policy under Shin.That broader lens may mark a shift in emphasis for the BOK.While current Governor Rhee focused on improving transparency, including introducing a Fed-style forward-guidance framework, Shin is seen as more attuned to the plumbing of the financial system: liquidity, leverage and cross-border flows.His communication style is also expected to differ. Citi notes he is likely to favor conditional, scenario-based messaging, maintaining flexibility rather than offering firm directional guidance.For now, markets are watching for his first signals.If confirmed, Shin will chair the May 28 monetary policy meeting, a potentially pivotal moment as policymakers assess whether to extend their current pause, or whether rising inflation risks will force a shift back toward tightening.The challenge he faces is one he has spent much of his career studying. Now it’s time for the abstract models of global finance to collide with a more immediate reality: an economy caught between external shocks, volatile markets and increasingly difficult trade-offs between growth and stability.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.