BOK: "Rising International Oil Prices Affect Import Amounts Since April" [Q&A]

Bank of Korea February International Balance of Payments (Preliminary) Press Briefing

The Bank of Korea recently observed that the rise in international oil prices has led to an increase in the cost of crude oil imports in April, which could impact the growth of current account imports.

Song Jae-chang, head of the Bank of Korea's Financial Statistics Department, stated in a briefing on the 5th, "International oil prices have been rising significantly since March, and we expect this to affect import costs from April onward."

He also anticipated that the current account surplus from March to May could shrink due to overseas dividend payments by domestic companies.

Below is a Q&A session with Director Song Jae-chang.

At the press briefing on the provisional international balance of payments for February 2024 held on the 5th, Song Jae-chang, head of the Financial Statistics Department at the Bank of Korea, is giving a briefing. Photo by Bank of Korea

- Exports have been on the rise as of February, but the growth rate has slowed compared to January. Exports excluding semiconductors have decreased. Is there a possibility that exports will decline in March?

▲ We need to consider that the January figures were influenced by a base effect. Looking at exports excluding semiconductors, passenger cars temporarily declined in February due to fewer business days caused by holidays and production facility maintenance. By country, China experienced the Lunar New Year holiday, which affected steel demand. The trade balance based on customs clearance is announced by the Ministry of Trade, Industry and Energy at the beginning of each month, and it shows that exports, mainly IT products, improved in March. The current account exports based on customs clearance in March are expected to maintain a favorable trend similar to February. Therefore, the current account balance is also expected to remain at a healthy level.

- International oil prices are currently rising. Will this have an impact going forward?

▲ We expect the rise in oil prices to affect current account imports from April onward. Looking at the trend in February, prices increased compared to January. The cost of crude oil imports reflects oil prices with a one-month lag. In February, the import cost was actually lower, so the impact of rising oil prices was not significant. However, the upward trend has strengthened since March, and we anticipate this will influence import costs from April onward. Even in March, the crude oil import cost remains lower compared to the same month last year.

- How long do you expect the current account surplus expansion to continue this year? You forecast a surplus of $49 billion this year. Is there a possibility of upward revision to this forecast?

▲ It is true that the expansion of the current account surplus is being driven by semiconductors. Memory prices have risen, and the semiconductor market is improving. This improvement is supported by strong and steady demand related to AI (Artificial Intelligence) data in front-end industries such as mobile and PC. This trend is expected to continue for the time being.

The cumulative current account surplus for January and February was $9.91 billion. In our February economic outlook, we projected a surplus of $19.8 billion in the first half and $32.2 billion in the second half. Considering this, the improvement in January and February appears to be faster than expected. However, from March to May, there are factors that could reduce the current account surplus. A representative factor is overseas dividend payments by domestic companies, which mainly affect the period from March to May, with the largest impact in April. It is likely that next month we will adjust the current account forecast to reflect these recent trends.

- Securities investment increased significantly compared to the previous month. Was this influenced by the value-up policy?

▲ Regarding foreign investment in domestic stocks, the corporate value-up support plan announced by the government in February had an impact. The recovery in the IT sector overseas, centered on high-performance semiconductors, was also reflected.

- The primary income balance increased significantly again. Last month, you mentioned that the effect of institutional changes had disappeared. What is the reason for the continued increase?

▲ The increase in the primary income balance in February was influenced by higher dividend income received by domestic companies from their overseas subsidiaries. In March, dividend payments by foreign-invested companies are likely to occur, and in April, dividends are expected to increase mainly among listed domestic companies, so we need to observe seasonal characteristics.

- The current account has been in surplus for 10 consecutive months, and the surplus is expanding. One would expect this to lead to a decline in the exchange rate level, but it remains high.

▲ Theoretically, a current account surplus leads to an appreciation of the won and a decline in the exchange rate. However, the current exchange rate is influenced more by expectations regarding the Federal Reserve's monetary policy direction and foreign demand for overseas funds, which tends to push it higher. Therefore, the theoretical relationship between the current account and exchange rate is not currently evident. We need to consider the global economic situation and conditions together.