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Governor Talks: Korea's Monetary Policy Challenges in the Context of the Combination of the AI Upcycle and Conflict in the Middle East

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Location: G-09

Governor Talks: South Korea

 

 

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Key Points

AI, the economic outlook, and monetary policy. Korea’s central role in the global AI supply chain is supporting strong growth and exports, more than offsetting the negative economic impact of the conflict in the Middle East. At the same time, the combination of the AI boom and the conflict is adding to inflation through stronger demand and higher costs. The Bank of Korea has raised interest rates and intends to maintain a restrictive monetary policy stance until it is confident that inflation will return to its 2 percent target in a timely manner.

Uneven growth and support for the vulnerable. While large firms, particularly in the technology sector, have benefited from the AI boom, disparities remain across sectors and regions. Inflation weighs most heavily on lower-income households, which spend a larger share of their income on food and energy, while some households and small businesses face higher debt-servicing costs. Bringing inflation under control is therefore an important way to support the least well-off, alongside fiscal measures to cushion the impact on vulnerable borrowers. Further exchange rate appreciation is also seen as increasing household purchasing power and shifting the balance toward the domestic economy.

Financial stability and global challenges. Financial stability risks should be addressed as they build, before they become too large and costly to manage. Monetary policy and macroprudential measures targeting housing and household debt can reinforce each other when used together. In Korea’s current circumstances, inflation, the exchange rate, and financial stability are seen as pointing in the same policy direction. Globally, the possible effects of AI on productivity and long-term interest rates, together with fiscal pressures and near-term financial stability risks, present broader challenges for policymakers.

Quotes

"But from a central bank point of view, the most important thing to remember is that inflation affects poor households the most. The poor households are the ones that are most affected by inflation. In the case of Korea, the lowest quintile spends 32 percent of its income on food and energy, for example. And so getting inflation under control is actually a very, very effective way of helping the least well off." Hyun Song Shin

"The second component is the exchange rate, because exchange rate is more than simply a relative price that determines trade. It is a gauge of the confidence in the currency. It's a gauge of the confidence in the whole economy. And so it's linked to financial market sentiment, it's linked to the risk-taking capacity of the system as a whole. Hyun Song Shin

“If you use macroprudential tools in combination with monetary policy, you actually enhance the effect of monetary policy and vice versa. In a tight monetary situation, the impact of macroprudential instruments are much larger; they're actually amplified." Hyun Song Shin

Overview

Governor Shin will speak about Asia and Korea’s policy challenges amid various forces shaping the global and regional outlook including related to the combination of the global AI upcycle and the uncertainty from the conflict in the Middle East. In particular, he will discuss how the Bank of Korea is balancing policy tradeoffs related to its commitment to low inflation, exchange rate flexibility and financial sector stability in this uncertain global context.

Panelists

Hyun Song Shin

Governor of the Bank of Korea

 

Hyun Song Shin currently serves as the Governor of the Bank of Korea (BOK) and the Chairman of its Monetary Policy Board. He is widely recognized for his extensive expertise in economics, public policy, and finance, having worked in academia, international institutions, and government.

 

Before joining the BOK, he held several prominent roles at the Bank for International Settlements (BIS). He served as Head of the Monetary and Economic Department from 2025 to 2026 and Head of the Research Department from 2014 to 2025, while serving as BIS Economic Adviser (2014-2026).

 

In Korea, he served as Senior Adviser to the Korean president in 2010, while on leave from Princeton, playing a leading role in formulating financial stability policy and shaping the agenda during Korea’s G20 presidency.

 

Academically, from 2006 to 2014, he was the Hughes-Rogers Professor of Economics at Princeton University. Prior to Princeton, he was Professor of Finance at the London School of Economics (2000-2006), having returned to the University of Oxford as a University Lecturer (1996-2000). Before that, he briefly served as Professor of Economics at the University of Southampton (1994-1996). He began his academic career as a Tutorial Fellow at University College, Oxford. He earned his DPhill (1988) and MPhill (1987) in Economics from Nuffield College, Oxford, and a BA in Philosophy, Politics and Economics, also from Magdalen College, Oxford, in 1985.    

Hyun Song Shin

 

 

Krishna Srinivasan (Moderator)

Director of the Asia and Pacific Department, IMF

 

Krishna Srinivasan is the Director of the Asia and Pacific Department (APD). In this capacity, he will oversee the institution’s work on all countries in the Asia-Pacific region. He was previously a Deputy Director in APD, overseeing the work on several systemically important countries, including China and Korea. Prior to that, Krishna was a Deputy Director in the Western Hemisphere Department (WHD), where he oversaw the institution’s work on several countries in the Americas, including Brazil, Canada, Mexico, Peru, Ecuador and the island economies of the Caribbean, the department’s research activities, and its flagship product, Regional Economic Outlook (REO) for Latin America and the Caribbean. He is a co-editor of two recent books: Brazil—Boom, Bust and the Road to Recovery; and Unleashing Growth and Strengthening Resilience in the Caribbean. Before joining WHD, Krishna was the IMF’s mission chief for the United Kingdom and Israel, when he was a staff member of the European Department, and before that in the Research Department, where he led the IMF’s work on the G-20 in the context of the global financial crisis. In the context of this work, he and was the editor of an IMF book Global Rebalancing: A Roadmap for Economic Recovery. Krishna has been with the IMF since 1994 and has served in several departments across the institution. He secured his PhD in International Finance from Indiana University and a Master’s from the Delhi School of Economics, India, and has published several papers both at the IMF and in leading academic journals.

Krishna Srinivasan (Moderator)