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South Korea’s president announced on March 22 the nomination of Shin Hyun-song—head of the Monetary and Economic Department at the Bank for International Settlements—as the next governor of the Bank of Korea, succeeding Rhee Chang-yong when his term ends on April 20. Shin is generally perceived as more hawkish than dovish, reflecting his long-standing focus on financial stability and leverage risks. However, amid elevated geopolitical uncertainty and ongoing oil price volatility, we expect his leadership to lean toward a balanced and pragmatic policy approach rather than outright tightening bias.
In recent remarks, Shin emphasized that a supply-driven and temporary oil price shock should largely be looked through, with any policy response contingent on the persistence and transmission of the shock. This implies that rate hikes are not the base case and would likely require a combination of sustained oil price increases, a rise in inflation expectations, and evidence of second-round effects. While oil price persistence remains uncertain and heavily influenced by geopolitical developments, second-round inflation risks appear contained. This reflects still-weak domestic demand, limited corporate pricing power, and a K-shaped recovery led primarily by the semiconductor sector, with broader consumption lagging.
KRW rates markets appear to have overpriced tightening risks. OIS/swap markets are currently pricing a 25bp hike (to 2.75%) within six months and around 100bp of cumulative hikes (to 3.50%) within 12 months—an outlook that appears overly aggressive relative to the macro backdrop and Shin’s policy framework. This creates scope for a downward repricing in front-end KRW rates and KTB yields, particularly after the May policy meeting when the BOK will release updated macro forecasts alongside its rate projection “dot plot”.
South Korean assets remain highly sensitive to global risk sentiment. The KRW has weakened by around 5% month-to-date, breaching 1,500 against the USD, while the KOSPI has declined by more than 10%. Foreign investors recorded net equity outflows of approximately KRW 20.6tn in the first 20 days of March. We expect continued FX and equity volatility, with external factors—especially Middle East tensions and global energy price dynamics—remaining the dominant drivers, given South Korea’s high dependence on energy imports and its cyclical exposure to global trade.
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