Korea’s Won Erases Loss as Current Account Points to Inflows

South Korea’s won erased a decline after the government projected the current-account surplus will rise to the highest level in 15 months, helping damp concern inflows will slow as a global economic recovery loses steam.

The currency is little changed so far this month after sliding 7.4 percent in the second quarter, Asia’s worst performance. The government today estimated June’s current-account surplus widened to $5.5 billion from $3.8 billion the previous month. The won dropped earlier after reports yesterday showed growth in Europe’s services and factory output slowed last month, while data today may show non-manufacturing businesses in the U.S. expanded at a weaker pace, according to a Bloomberg survey.

“We’re seeing a normal post-crisis struggle in the won,” said Philip Wee, a senior currency economist from DBS Bank Ltd. in Singapore. “The key thing is to see how we ride through this weakness.”

The won was little changed at 1,222.50 per dollar as of the 3 p.m. close in Seoul, after declining as much as 0.9 percent, according to data compiled by Bloomberg. The currency has dropped 4.8 percent this year, the worst performer in Asia.

South Korea’s economy will expand 5.75 percent this year, the International Monetary Fund said in Seoul today, raising its forecast from 4.5 percent. The government on June 24 boosted this year’s growth forecast to 5.8 percent from a December projection of 5 percent, saying the global recovery is spurring exports and local demand.

Interest Rates

The Bank of Korea should start gradually increasing interest rates to avoid falling behind the nation’s economic-growth trend, the IMF said in a statement after a two-week review in Seoul.

South Korea’s government “wouldn’t be surprised” if the Bank of Korea raises borrowing costs in August as the outlook for inflation is concerning, the Edaily newspaper reported, citing an unidentified government official. Consumer prices rose 2.6 percent in June from a year earlier, after climbing 2.7 percent in May, official data showed.

The central bank will keep its benchmark interest rate at a record-low 2 percent at a review this week, according to 10 of 14 economists surveyed by Bloomberg. Four predicted a quarter-percentage point increase.

South Korea’s three-year bonds were little changed. The yield on the 3.75 percent note maturing in June 2013 fell one basis point to 3.83 percent, according to Korea Stock Exchange. A basis point is 0.01 percentage point.

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