Bank of Korea Gov. Shin Makes Case for Forward Guidance That Preserves Flexibility

By Jihye Lee and Fabiana Negrin Ochoa

There are clear downsides to central banks giving forward guidance on interest rates, but just the right amount can offset those flaws, says Bank of Korea Gov. Shin Hyun-song.

Speaking at the IMF-World Bank annual meetings in Bangkok on Tuesday, Shin said the art is finding the "sweet spot" in giving a snapshot into central banks' thinking that doesn't tie policymakers' hands.

The debate on how much guidance central banks should give has resurfaced since Kevin Warsh made scaling back guidance one of his first priorities at the Federal Reserve.

An environment of constant uncertainty has markets hungry for signals on interest-rate paths as bond yields rise, the energy shock rumbles on, and volatility reigns.

Some argue that central banks should communicate clearly to avoid catching markets off guard and anchor expectations. Others counter that telegraphing decisions confines policymakers to a preset path, limiting their flexibility.

On Tuesday, Shin stressed the importance of striking the right balance, something the BOK is in the process of fine-tuning.

Earlier this year, the Korean central bank introduced its own "K dot plot" of policymaker rate projections, fashioned after the Fed's own guidance.

Shin described it as "a very impressionistic view" of the monetary policy committee's thinking. Published every three months and looking six months ahead, it gives officials room to update their views as new information arrives.

Guidance around the BOK's August meeting, when it raised rates for the second consecutive time, signaled a possible hike and "turned out to have a beneficial effect on the long-term yield," Shin said.

Reiterating prior comments, he said the BOK's monetary policy would remain restrictive until the bank is confident that inflation will converge to its 2% target in a timely manner.

South Korea's economy is at the intersection of two global forces: the artificial-intelligence boom and the energy shock, he said.

AI has more than offset the economic drag from the Middle East conflict but is shaping an uneven recovery and carries its own risks, Shin said.

AI could, for example, stoke already sticky inflation.

In that context, some appreciation in the won could be desirable, said Shin. The exchange rate also serves as an important indicator of confidence in the economy, he added.

While the BOK's job of balancing the traditional monetary policy tradeoffs of supporting growth and taming inflation is made easier by the fact that both are pointing in the same direction, Shin warned against a non-holistic approach to policy steering.

Monetary policy and measures to curb financial risks work best together, he said.

"Being a central bank can be very lonely, we need all the help we can get," Shin said.

Write to Jihye Lee at jihye.lee@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

October 13, 2026 07:19 ET (11:19 GMT)