South Korea to Decide Rates, Reveal Producer Prices: Week Ahead

South Korea’s central bank will make An interest rate decision at a monthly monetary policy meeting on Dec. 9 as economic growth slowed in the previous quarter and inflation decelerated from a 20-month high in November.

The Bank of Korea will assess the scope for raising its key interest rate from 2.5 percent at this week’s policy meeting, as tension with North Korea overshadows Asia’s fourth-largest economy. The central bank increased borrowing costs for the second time this year at its previous meeting after a jump in the won failed to stop inflation surging past the central bank’s ceiling.

South Korea’s gross domestic product increased 0.7 percent in the third quarter, compared with a 1.4 percent gain in the previous three months, after a surge in the won contributed to a cooling in goods exports. Consumer price growth decelerated to 3.3 percent last month, while exports increased for the 13th straight month. Industrial production declined 4.2 percent from the previous month in October, the biggest decline in 22 months, reducing the case for the central bank to raise interest rates for a third time by year-end.

The central bank is also scheduled to release bank household lending and producer prices for November. In October, lending to households increased by 2.7 trillion won ($2.4 billion), the most in six months, to a record 424.2 trillion won, while producer prices rose at the fastest pace in 22 months.

Artillery Drills

South Korea’s military is preparing to carry out the first live-fire artillery drills along its disputed western sea border since the deadly shelling of Yeonpyeong island by North Korea. As more than 40,000 Japanese and U.S. troops began joint exercises last week, South Korea warned shipping to avoid 29 areas around its coast starting Dec. 6. One zone lies about 7 miles (11 kilometers) off Daechong island, in waters claimed by the North that are about 100 miles from the South Korean mainland.

South Korea’s benchmark Kospi stock index climbed 2.9 percent last week to 1,957.26. The won appreciated 1.9 percent to 1,138.55 per dollar for the week, according to data compiled by Bloomberg. The yield on the 3.75 percent bond due June 2013 fell 18 basis points last week to 3.12 percent, the lowest level in more than a month, according to the Korea Stock Exchange. A basis point is 0.01 percentage point.

The following is a list of major events in South Korea this week:

Event                                              Date
South Korea’s live-fire artillery drills           Dec. 6
South Korea’s November bank lending to household   Dec. 9
South Korea’s Monetary Policy Committee meeting    Dec. 9
South Korea’s November Producer Price Index        Dec. 9

To contact the reporter on this story: Jungmin Hong in Seoul at jhong47@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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