SEOUL, April 15 (Reuters) – Incoming Bank of Korea Governor nominee Shin Hyun-song on Wednesday signaled the potential for tighter monetary policy, stating the central bank must respond if supply-side shocks from the Iran war lead to prolonged inflationary pressure.
“A significant test is coming. Given the current situation where the Middle East crisis has not been resolved quickly, I believe price pressures will continue,” Shin said when asked by a lawmaker about policy direction at a parliamentary confirmation hearing in Seoul.
“If it persists for a long time, it gets reflected in inflation expectations and core inflation, and leads to overall inflation, then I believe monetary policy will certainly have a role to play.”
His comments come as Asia’s fourth-largest economy is dealing with weaker growth and higher prices as the Middle East conflict threatens the economy with a larger supply shock than previously expected.
The central bank held the benchmark interest rate steady at 2.50% on April 10, in the last policy decision overseen by incumbent Governor Rhee Chang-yong whose term ends on April 20.
When asked if he sees more risk over prices than growth, Shin said price stability is the bank’s utmost priority to achieve stable economic growth, with inflation “likely to accelerate” due to surging import costs.
On Wednesday, Shin also reversed his previous neutral stance on the currency, warning against the “sharp weakening” of the won and vowing to intervene if exchange rate volatility becomes excessive.
(Reporting by Cynthia KimEditing by Ed Davies)
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