New BoK Governor Eyes Flexible Policy Amid Volatile Outlook

South Korea’s new central bank chief signaled a cautious policy stance as geopolitical tensions cloud the outlook. In his inauguration speech on Tuesday, Bank of Korea Governor Shin Hyun-song said policymakers must remain “cautious and flexible” as the Middle East conflict creates a supply shock, complicating both inflation and growth trajectories. He warned that rising oil prices linked to the Iran war are simultaneously pushing inflation higher while weighing on economic activity, a combination that raises risks for financial stability and market volatility. Shin emphasized the need to balance price stability with safeguarding the financial system amid these uncertainties. Having begun his four-year term on Tuesday, he is set to chair his first policy meeting on May 28, where markets will closely watch for signals on how the central bank plans to navigate an increasingly challenging environment.

Bank of Korea governor nominee Shin Hyun-song on Wednesday pledged to prioritize price stability as South Korea faces rising inflation risks and growth uncertainty linked to the Middle East conflict. At his confirmation hearing, Shin highlighted mounting price pressures and downside risks to growth, promising to balance inflation control, financial stability, and steady expansion. He cautioned inflation could climb in the coming months on higher oil prices and a weaker won, while growth may undershoot forecasts. “Given South Korea’s sensitivity to oil prices, I will place greater emphasis on price stability,” he said. Shin is set to succeed Rhee Chang-yong on April 20, ahead of the May rate decision, but offered no policy guidance. He noted direction will hinge on Middle East developments, with supply risks around the Strait of Hormuz.

The Bank of Korea (BoK) held its policy interest rate steady at 2.5% for the seventh consecutive meeting in April 2026, in line with market expectations, as policymakers assessed the impact of the Iran war on domestic cost pressures and GDP growth. The decision came amid rising inflation and heightened volatility in financial and foreign exchange markets. Annual inflation accelerated to 2.2% in March 2026, up from 2.0% in the previous two months, marking the highest reading since last December and surpassing the central bank’s 2% target. Looking ahead, inflation is expected to rise to the mid- to upper-2% range due to a surge in global oil prices. CPI for this year is expected to exceed the February forecast of 2.2%, while core inflation is also likely to be somewhat higher than the previous forecast of 2.1%. Meanwhile, the growth rate for this year is expected to be below the February forecast of 2.0%.