Bank of Korea Governor: Supports further appreciation of the Korean won, will maintain restrictive monetary policy.

Bank of Korea Governor Shin Hyun-song said further appreciation of the Korean won is desirable, as the currency's significant rise since the BOK shifted to tightening monetary policy is boosting household purchasing power. "We will maintain a restrictive monetary policy stance until we are confident that inflation will converge to the target level in a timely manner," Shin said Tuesday at the International Monetary Fund (IMF) and World Bank annual meetings in Bangkok. Stronger Won Eases "K-Shaped" Divergence, Policy Trade-offs Become Less Difficult Shin said the stronger won has tilted the economic balance toward the domestic sector, helping to ease the divergence in what he called the "K-shaped economy." He added that inflation, the exchange rate and financial stability all point in the same policy direction, making the trade-offs facing the BOK easier to handle than usual. The remarks come ahead of the BOK's policy decision on October 22. The BOK previously raised rates by 25 basis points in both July and August, lifting the benchmark rate to 3%. Shin had earlier hinted that further tightening would be gradual, as policymakers need to assess the impact of rising borrowing costs. Shin also said the BOK will evaluate its six-month rate dot plot after accumulating at least a year of experience. The dot plot was introduced in February under former Governor Lee Chang-yong. He did not give a timeline and said any evaluation would take place next year or later. Shin said the projections help convey policymakers' thinking. In August, the BOK used the projections to show the extent of its monetary policy response alongside a rate hike, which he believes had a positive effect on long-term yields. However, policy guidance still needs to remain flexible so it can respond to new information. "We try to find that optimal balance between too much and too little forward guidance," Shin said. AI Boom and Middle East War Intertwine, Inflation May Remain Above Target Such flexibility may be important, as BOK policymakers are grappling with several conflicting forces affecting the economic outlook. Shin said the AI boom is offsetting the drag from the Middle East war, but the two forces combined are exacerbating inflation. Stronger demand is adding to the cost pressures from the conflict, making it likely that both headline and core inflation will remain above the BOK's 2% target for some time. The IMF on Tuesday raised its growth forecast for South Korea this year to 3.3%, up 0.7 percentage points from its July projection, citing demand growth in the semiconductor industry offsetting the negative effects of the war. This aligns with the BOK's latest forecast. In August, the BOK sharply raised its 2026 growth forecast from 2.6% to 3.3%. The IMF also raised its 2027 growth forecast to 2.8%. South Korea's exports more than doubled year-on-year in September to a record $120.9 billion, with semiconductor shipments surging 263%. Inflation slowed to 2.9% from 3.1% in August, but remains above the BOK's target. Shin, who worked at the Bank for International Settlements (BIS) for more than a decade before taking the helm of the BOK, said tightening policy should also slow the accumulation of financial vulnerabilities. The BOK's financial vulnerability index is rising, but he does not expect its peak to reach levels that would trigger alarm.