South Korea’s industrial production increased for the 17th straight month and the current account may post a $29 billion surplus this year, supporting the case for the central bank to increase borrowing costs again.
Factory output rose 10.4 percent in November from a year earlier, Statistics Korea said in Gwacheon today. The current- account surplus is expected to widen “a lot” in December after narrowing to a seven-month low of $1.93 billion last month on rising imports, the Bank of Korea said separately.
The data signal exports are weathering a 35 percent appreciation in the nation’s currency against the dollar since March last year, the biggest in Asia. Moves to pare the gain by reviving taxes on overseas investment in government debt and discouraging foreign-currency speculation contributed to the won’s steepest decline in six months in November.
“The won’s recent weakness due to capital controls is apparently helping exports hold up,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul. “Given solid economic growth and growing inflation pressures, the central bank will likely discuss a rate increase next month and act in February.”
The won rose 0.6 percent to 1,139.75 as of 12:03 p.m. in Seoul, according to data compiled by Bloomberg. The currency fell 2.9 percent in November, the steepest drop since May. The benchmark Kospi stock index was little changed.
‘Robust’ Exports
The current-account surplus “is expected to widen a lot next month as exports remain robust,” Lee Young Bog, an official at the Bank of Korea, said in Seoul today. “This year’s total surplus won’t be much different from the $29 billion forecast earlier this month.”
The central bank left the nation’s benchmark interest rate at 2.5 percent on Dec. 9 after raising borrowing costs by 0.25 percentage point in each of July and November from a record-low 2 percent. The benchmark lags behind last month’s 3.3 percent pace of inflation.
Officials from Brazil to Taiwan and Thailand are trying to curb currency gains driven by capital inflows. They have faulted the U.S. Federal Reserve’s plan to inject $600 billion into the world’s biggest economy for threatening to depress the dollar and intensifying capital flight to their higher-yielding markets.
South Korea said earlier this month that it aims to apply a levy on banks’ foreign-exchange borrowings, will strengthen punishment for inappropriate reporting of currency trades and may tighten rules on derivatives in a bid to control incoming foreign funds and prevent sudden capital flight.
Imports Climb
November’s current-account surplus compared with a revised $4.89 billion in October, the Bank of Korea said in a statement in Seoul today. The current account is the broadest measure of international trade, tracking goods, services and investment income.
Total exports on a customs-cleared basis, which excludes ships, rose 23.6 percent last month from a year earlier, while imports climbed 32.7 percent, according to the statement.
The increase in industrial production followed a 13.5 percent rise in October, Statistics Korea said. Output advanced 1.4 percent in November from October.
Exports account for about half of South Korea’s economy and have boosted earnings this year at companies including Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones.
Gross domestic product increased 4.4 percent in the third quarter from a year earlier. It is set to rise 4.5 percent in 2011, while consumer prices may increase 3.5 percent next year, from 2.9 percent in 2010, according to the central bank.
To contact the reporters on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net; William Sim in Seoul at wsim2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net
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