Balanced BoK outlook under Shin – DBS

Finance

Balanced BoK outlook under Shin – DBS

DBS Group Research economist Ma Tieying assesses South Korea‘s markets after President Yoon nominated Shin Hyun-song as the next Bank of Korea (BoK) governor. She argues Shin’s focus on financial stability does not translate into imminent tightening, seeing rate hikes as unlikely. DBS expects South Korean Won (KRW) rates to reprice lower and highlights persistent sensitivity of the KRW and equities to global risk sentiment.

BoK nomination, KRW rates and assets

“South Koreas 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.”

“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 Shins 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 Koreas high dependence on energy imports and its cyclical exposure to global trade.”