[2026 Parliamentary Audit] Shin Hyunsong Makes Audit Debut, Maintains Tightening Stance: "Preemptive Rate Hikes Saved Time and Reduced Costs" (Roundup)

Concerns Over Side Effects of "Two Consecutive" Rate Hikes Even From Ruling Party
Emphasizes Tackling Inflation but Holds Back on Timing of Further Hikes
"I Regret Failing to Warn in Advance About Leveraged ETF Risks": Rare Apology
"Absolutely No General-Purpose CBDC"..."As an Independent Institution, We Will Speak Up"

At the National Assembly’s audit of the Bank of Korea on the 12th, the main issues were the appropriateness of raising the benchmark interest rate for two consecutive months and the policy mismatch between monetary tightening and an expansionary fiscal stance. At his first parliamentary audit since taking office, Bank of Korea Governor Shin Hyun-song signaled his intention to maintain a restrictive policy stance, saying, "By raising interest rates preemptively, we saved time and reduced the economic costs." However, regarding the timing of any further rate hikes, he said the Bank would also consider their impact on the real economy, alongside inflation trends.

Shin acknowledged and apologized for failing to adequately warn the public in advance about the risks related to the single-stock leveraged ETF controversy. In response to opposition lawmakers’ criticism of the mismatch between monetary tightening and fiscal expansion, he said, "I will offer my views so that monetary and fiscal policies can be implemented in harmony." Regarding "Project Hangang," the Bank of Korea’s central bank digital currency (CBDC) project, he drew a line, saying, "There is no concern about privacy violations," and "We will absolutely not pursue a general-purpose CBDC."

Shin Hyun-song, governor of the Bank of Korea, answers lawmakers' questions during a parliamentary audit at the Bank of Korea in Jung-gu, Seoul, on the 12th. Photo by Joint Press Corps, Yonhap News.

Shin Defends Two Consecutive Rate Hikes: "Inflation Data Will Be Key to Any Further Increase"

Regarding the decision to raise the benchmark interest rate in July and August, Shin said the Bank had gained time by raising rates ahead of the U.S. Federal Reserve (Fed), and that this had incurred lower economic costs than responding belatedly.

"Compared with other major economies, we set the direction of monetary policy, toward raising interest rates, a little earlier," Shin said. "At the time, I used the expression, 'We stopped it with a hoe instead of a shovel.' I believe the economic costs were much lower than they would have been if we had been forced by the market to raise rates defensively later on." He added, "Raising the benchmark interest rate causes pain, but by acting preemptively, we can help stabilize the market and ultimately reduce the costs."

On the timing of any further benchmark rate hikes, he said, "The most important thing is the trend in inflation," making clear that the Bank intended to maintain its restrictive monetary policy stance. "Core inflation is considerably above the target," Shin said. "Preemptively curbing core inflation is a very important step toward achieving our future inflation target of 2%." He added, "Low-income and vulnerable groups are the hardest hit by inflation. Curbing inflation will also help address polarization."

He also acknowledged the hardship that high interest rates could cause for low-income and vulnerable groups. "Vulnerable borrowers also feel the pain of monetary policy," Shin said. "The impact of [interest rate decisions on] the real economy is also a very important consideration." He added, "That is an issue where other policies need to be mobilized, particularly through close coordination with the government." However, he emphasized, "When setting interest rates, we always assess the ability of economic agents to adjust. We will implement policies that allow us to reach our destination smoothly, without shocks, while achieving our price stability target."

Meanwhile, lawmakers from the ruling party also voiced concerns at the audit about the downside of the economic boom and the side effects of rate hikes. Kim Tae-nyeon of the Democratic Party of Korea said, "The overall economic figures point to a boom, but people still feel that the economy is struggling. In the midst of this, the Bank of Korea has raised rates twice, directly affecting domestic demand, small and medium-sized enterprises, and regional economies. If interest rates are set in line with the growth rate boosted by semiconductors, that could amount to excessive tightening for other industries." He added, "The most distinctive feature of our economy right now is that the gains from growth and the burden of tightening can fall on different groups. If a boom in the figures does not translate into a better life for the public, monetary policy must not ignore that gap."

In response, Shin said, "A central bank conducts monetary policy by looking at the economy in aggregate," adding, "We will do our utmost to ensure that fiscal and monetary policies work in harmony through close information sharing with the government."

Bank of Korea Governor Shin Hyun-song drinks water during a parliamentary audit at the Bank of Korea in Jung-gu, Seoul, on the 12th. Photo by Joint Press Corps, Yonhap News Agency.

Shin Apologizes Over Single-Stock Leveraged ETFs: "We Failed to Warn of the Risks in Advance"

Regarding the controversy over single-stock leveraged ETFs, Shin said, "I agree that we did not provide sufficient warnings [about the risks]," adding, "I apologize to the public." His remarks expressed his acceptance of responsibility and regret in response to criticism that the Bank of Korea alone had avoided responsibility for the recent controversy.

"At press conferences following meetings of the Monetary Policy Board, including one at the end of May, we made several general comments about investing in stocks using debt. But at the time, we had not fully assessed volatility in the domestic stock market, particularly in the memory semiconductor sector," Shin said. "I agree that we did not provide sufficient warnings about it."

He also acknowledged that the Bank had failed to adequately address the issue in its Financial Stability Report published on June 24. The KOSPI peaked at 9,115 on June 22 and plunged to 8,200 on June 23. However, the subsequent financial stability report stated that single-stock leveraged ETFs "are expected to help prevent domestic investment funds from flowing overseas and contribute to increased inflows of foreign capital. Their current impact on the market is limited."

"It is true that most of the report is drafted between late May and early June," Shin said, but acknowledged that "given the situation at the time, [the report] was not appropriate." Asked about criticism that the September Monetary Policy Report, published after the situation had subsided, offered detached commentary on the issue, he said, "I apologize to the public."

Bank of Korea Governor Shin Hyun-song answers questions from lawmakers during a parliamentary audit at the Bank of Korea in Jung-gu, Seoul, on the 12th. Photo by Joint Press Corps, Yonhap News Agency.

Opposition Criticizes Mismatch Between Monetary and Fiscal Policies; Shin Says He Will Keep Offering Views to Promote Coordination

The People Power Party criticized the policy mismatch between the government’s expansionary fiscal policy and the Bank of Korea’s monetary tightening. Lawmakers also argued that Shin, as the head of monetary policy, should voice concern about the government’s fiscal expansion.

People Power Party lawmaker Park Soo-young criticized the government’s planned budget of 820.9 trillion won for next year and the reverse margins of the Future Response Fund, saying, "The money supply (M2) is rising much faster than in the United States under this expansionary stance, but the Bank of Korea is staying silent and letting it happen." He added, "After rapidly increasing fiscal spending, will the government issue more government bonds and run the country that way again in two or three years if tax revenues fail to come in? Semiconductor tax revenues may fall, but spending that has been increased does not go back down. I ask the governor to take a more active role on this issue."

Fellow party lawmaker Kim Sang-hoon also said, "The Bank of Korea has hit the brakes, but the government has floored the accelerator. While the effects of fiscal spending and rate hikes cancel each other out, only small businesses and self-employed people, who are sensitive to financing costs, are suffering."

In response, Shin said, "We are using models to assess whether the two policies are actually working at cross-purposes." He explained that the government’s budget proposal was estimated to add 0.06 percentage points to domestic inflation. He added, "There is room for further assessment of whether fiscal expansion is adding to upward pressure on prices. An increase of about 0.06 percentage points can be considered not particularly large." He said, "It is true that [fiscal expansion] puts pressure on prices and the money supply," but added, "In the medium to long term, if it raises the growth rate, the policies may not be at cross-purposes."

Shin also said, "The sustainability of fiscal policy is absolutely crucial," adding, "When interest rates rise, vulnerable borrowers are particularly hard hit, so support through fiscal policy that is coordinated with monetary policy will be very important." He emphasized, "I will continue to offer my views to ensure that the two policies are implemented in harmony. I will carry out monetary policy independently and without wavering at all." 

Bank of Korea Governor Shin Hyunsong presents a work report during a parliamentary audit at the Bank of Korea in Jung-gu, Seoul, on the 12th. Photo by Joint Press Corps, Yonhap News Agency.

Shin Rules Out CBDC Privacy Concerns: "We Will Never Pursue a General-Purpose CBDC"

Shin also firmly dismissed concerns that "Project Hangang," the digital currency project being pursued by the Bank of Korea, could infringe on personal privacy, saying there were no such concerns.

"Personal information is all managed by banks, which conduct business with their customers, and the Bank of Korea does not have that information, just as before," Shin said, drawing a clear line. He explained that interbank settlements are conducted using the Bank of Korea’s ledger.

On general-purpose CBDCs (retail CBDCs), which have prompted concerns about privacy violations, he emphasized, "The Bank of Korea has not considered a general-purpose CBDC since 2023, and we will absolutely not pursue one." 

Shin explained, "Project Hangang, which is currently underway, centers on wholesale digital currency and involves tokenizing the existing two-tier monetary and financial system as it is. It has multiple safeguards in place, and I believe it has been implemented quite securely, even taking into account recent hacking incidents involving artificial intelligence (AI)." 

Regarding privately issued won-denominated stablecoins, he said, "We are basically in favor," adding, "The approach will be to form a consortium led by private banks, in line with the government’s agreed-upon plan." On the possibility of side effects, such as large-scale capital outflows, he said, "I think it will depend on the scale. Most stablecoins currently in circulation are denominated in U.S. dollars, so it is unclear how widely won-denominated stablecoins will be used." He added, "We will work with the relevant authorities to prepare for potential risks."

This content was produced with the assistance of AI translation services.