[Weekly Review] Current Account Surplus Hits Five-Year High... Inflation Concerns Shake Financial Markets

On the 21st of last month, export and import containers were piled up at Busan Port's Sinsundae and Gammam Wharf. [Image source=Yonhap News]

Last year, the current account recorded a surplus of $88.3 billion. This is the largest surplus in five years since 2016 ($97.92 billion). However, the increase in imports outpaced that of exports, causing the goods balance to decrease by $4.4 billion compared to the previous year. As a result, last year's current account surplus fell short of the Bank of Korea's forecast of $92 billion.

Last Year’s Current Account Surplus of $88.3 Billion

According to the preliminary balance of payments statistics released by the Bank of Korea on the 10th, last year's current account recorded a surplus of $88.3 billion, up 16.3% ($12.4 billion) from the previous year ($75.9 billion). However, this was less than the Bank of Korea’s initial forecast of a $92 billion surplus. The goods balance surplus was $76.21 billion, down $4.4 billion from a year earlier, which had a significant impact.

Hwang Sang-pil, head of the Economic Statistics Bureau at the Bank of Korea, explained, "The actual surplus was about $3.7 billion less than the forecast ($92 billion) because imports surged sharply due to rising raw material prices since the fourth quarter of last year, reducing the expected goods balance surplus." Last year’s annual exports reached $650.01 billion, a 25.5% increase from the previous year, but imports surged 31.2% to $573.81 billion due to the sharp rise in raw material prices.

Looking at December alone, the current account recorded a surplus of $6.06 billion, continuing a surplus streak for 20 consecutive months. However, the surplus amount was reduced to about half compared to a year earlier. The Bank of Korea expects a current account surplus this year as well, but many analyses suggest that the surplus may fall short of forecasts due to the ongoing rise in raw material prices.

Risk factors for this year’s current account include the spread of domestic and international infectious diseases, global supply disruptions, volatile raw material prices, and changes in China’s economic growth rate. Regarding the goods balance outlook, Hwang said, "There are so many variables affecting Korea’s exports and imports that it is difficult to gauge at this time."

US Inflation Shock... Financial Markets Shaken

Recently, the US consumer price index rose sharply, shaking domestic financial markets. The US January Consumer Price Index (CPI) inflation rate (year-on-year) recorded 7.5%, significantly higher than the market forecast of 7.2%. This is the highest level since February 1982. As a result, concerns about the Federal Reserve’s (Fed) tightening measures intensified in the market.

With US consumer inflation rising to the highest level in 40 years, domestic stock prices, the Korean won, and bond prices all fell together. The KOSPI index turned bearish after four trading days, closing at 2,747.71, down 24.22 points (0.87%) from the previous trading day. In the Seoul bond market, the yield on 3-year government bonds closed at 2.343%, up 7.9 basis points (1bp = 0.01 percentage points) from the previous day.

The 10-year bond yield rose 6.1 basis points to 2.747%, the highest since June 7, 2018 (2.750%). Generally, when bond yields rise, prices fall. In the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,198.5 won per dollar, up 2.0 won from the previous day’s closing price. Considering the widespread inflationary pressures, the market expects high inflation to continue for some time.

Do Gyu-sang, Vice Chairman of the Financial Services Commission (left), Lee Ju-yeol, Governor of the Bank of Korea, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, and Jung Eun-bo, Governor of the Financial Supervisory Service, are posing for a commemorative photo at this year's first expanded macroeconomic and financial meeting held on the 11th at the Korea Federation of Banks building in Jung-gu, Seoul. Photo by Moon Ho-nam munonam@

Government and Bank of Korea to Pursue Additional Simple Treasury Bond Purchases

As inflationary pressures and financial market instability concerns grow, heads of fiscal, monetary, and financial authorities gathered to discuss cooperation measures. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, Bank of Korea Governor Lee Ju-yeol, Financial Supervisory Service Chairman Jung Eun-bo, and Financial Services Commission Vice Chairman Do Kyu-sang held an expanded macroeconomic and financial meeting yesterday at the Seoul Banking Hall.

Deputy Prime Minister Hong and others agreed that, given the expanding domestic and international risk factors such as global inflation and major countries’ monetary policy shifts, stable management of the macroeconomy and financial sectors is very important.

The Bank of Korea decided to promptly implement additional simple purchases of treasury bonds and adjust the monthly issuance volume of Monetary Stabilization Bonds (MSBs) to stabilize the rapidly rising government bond yields. Simple treasury bond purchases refer to buying treasury bonds circulating in the market, unlike direct purchases where the central bank buys government-issued bonds directly.

The Ministry of Economy and Finance plans to issue treasury bonds as evenly as possible to accommodate the supplementary budget issuance. Considering the significant inflationary pressures in the first half of the year due to rising international oil prices and increases in processed food and dining prices, the fiscal, monetary, and financial policy sectors will cooperate more closely.

They will also prepare a soft-landing plan to reduce debt risks for small business owners and self-employed individuals. The decision on whether to extend loan maturity extensions and repayment deferrals will be made next month, with tailored support measures designed to suit the circumstances of self-employed individuals. The extension of the Bank of Korea’s financial intermediary support loans for the self-employed, which expire in March this year, will also be reviewed.

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