Bank of Korea Governor Shin Hyun-song said an investment boom in artificial intelligence will support global trade and growth and benefit the South Korean economy. With more than $1 trillion in investment expected over the next three to four years, he said AI-driven growth opportunities could continue. He also warned that expanding AI investment and rising energy prices stemming from the war in the Middle East are fueling inflation at the same time, stressing the importance of monetary policy in containing it.
Speaking on the 14th in Bangkok, Thailand, where the annual meetings of the International Monetary Fund and the World Bank are being held, Shin said on a CNN panel alongside World Trade Organization Director-General Ngozi Okonjo-Iweala and others that "Korea sits at the intersection of two of the most important developments in the economy: large-scale AI investment and the war in the Middle East." He added that "the two events work in opposite directions in terms of the business cycle, but for prices, the two forces combine to generate inflation."
A sustained AI investment boom can underpin global trade and growth and produce spillover effects for the Korean economy, he said, but stronger demand from robust semiconductor exports and higher oil prices driven by the Middle East war could push prices up.
Shin also emphasized the impact of inflation on vulnerable groups. "Korea is a fairly clear case of a K-shaped economy," he said, adding that "from a central bank's perspective, it is important to keep in mind that inflation inflicts greater damage on low-income households." Because price increases erode the real purchasing power of low-income households more severely, appropriate monetary policy is needed to keep prices stable.
The BOK raised its base rate by 0.25 percentage point in each of two consecutive moves in July and August. The next monetary policy decision meeting of the Monetary Policy Board is set for the 22nd.
A day earlier, Shin said that "right now in Korea, inflation is too high, the exchange rate has room to fall further and we also have to address financial stability," adding that "prices, the exchange rate and financial stability, which are all critical to monetary policy decisions, are unusually and quite clearly pointing in the same direction."