U.S. News

South Korea's June Exports Top Forecast, Rate Hike Looms


South Korean exports grew more than expected in June and the trade surplus hit a record high, data showed on Monday, setting the stage for the central bank to raise interest rates next week for the first time in 11 months.

Provisional commerce ministry data showed exports rose 15.9% in June from a year earlier, beating market expectations for an 11.6% rise. Imports grew 9.3%, below a 12.6% rise forecast in a Reuters poll.

The trade surplus of a provisional $3.95 billion for June marked the highest monthly surplus on record, the ministry said, which was up from a surplus of $1.93 billion for the same month in 2006.

"For the Bank of Korea, this set of figures only reinforces the view in favor of an interest rate increase, and such a move could come as early as this month," said Lee Sang-jae, an economist at Hyundai Securities.

The central bank has already expressed its concern about  high liquidity growth and building inflation pressures from global oil prices, prompting investors to price in at least one interest rate increase this year.

The Bank of Korea's monthly interest rate review is due on July 12. The bank has held the overnight call rate target steady during the past 10 months after lifting it by a combined 1.25 percentage points between October 2005 and August 2006.

Local financial markets generally shrugged off the surprisingly strong export data, with the Seoul stock market's benchmark Kospi Index extending gains only modestly and September treasury bonds slightly paring their gains.

The won was steady against the dollar as traders remained wary about possible dollar-buying intervention by the authorities intended to cap the already firm currency, now hovering near 2007 highs against the U.S. dollar.

South Korea is the first major economy in the region to report trade figures each month.

China and the United States combined take in two-fifths of South Korea's shipments, and electronics and autos make up about 45% of exports.

The Commerce Ministry has forecast export growth in 2007 will slow to 10.4% from 14.4% last year due to an expected slowdown in U.S. economic activity.