BANGKOK — Bank of Korea Governor Shin Hyun-song said the central bank will keep its monetary policy stance restrictive until it is confident that inflation is converging on the 2% target. He pointed to an artificial intelligence investment boom that is lifting growth while adding to price pressures, along with further won appreciation and financial stability as factors supporting tighter policy.
Speaking on the 13th at the annual meetings of the International Monetary Fund and the World Bank Group in Bangkok, Shin said in a dialogue with Krishna Srinivasan, director of the IMF's Asia and Pacific Department, that the central bank will "maintain a restrictive monetary policy stance until we are confident that inflation will converge on the target level in a timely manner." He said the AI cycle is overwhelming the negative effects of the war in the Middle East, but that on the price front the two factors are combining to intensify both cost-push and demand-pull pressures. Both headline and core inflation will stay above target for a considerable period, he forecast.
Shin stressed that all three policy conditions — inflation, the exchange rate and financial stability — point toward tighter policy. "The won has appreciated significantly since the shift to a restrictive stance, but there is room for further appreciation, and some additional appreciation would also be desirable," he said. A stronger won boosts households' real purchasing power and helps balance exports and domestic demand, easing the K-shaped polarization of the economy, he explained.
He also raised the possibility that expanding AI investment could push up long-term interest rates. Shin said AI infrastructure investment by the world's large cloud companies is estimated to exceed $1 trillion a year through 2030, and that "the ultra-long-term corporate bonds they issue are drawing money out of the funding pool and have become one factor behind the rise in long-term rates." The remarks suggested that AI investment could lift the neutral rate by raising demand for funding even as it improves productivity.
On financial stability, Shin stressed the need to act before imbalances grow larger. "Responding after imbalances have grown is as dangerous as bursting a balloon with a needle," he said, calling for coordination between monetary policy and macroprudential policy. He also emphasized that price stability is the most effective way to help vulnerable groups, noting that households in the bottom 20% by income spend 32% of their income on food and energy, which makes controlling inflation important.
Separately, Shin said the central bank will review its K-dot plot, which discloses the Bank of Korea's interest rate projections, after operating it for at least a year.