South Korea June money growth hits 4-1/2 years high

South Korea's money supply in June grew at its fastest annual pace in almost 4-1/2 years, data showed on Monday, providing the already hawkish central bank with more ammunition just days before a monthly interest rate review.
Bank of Korea data showed the country's broadest L money supply measure expanded by 12.7 percent in June from a year earlier, the fastest since an annual rise of 12.9 percent in February 2003 and above a revised 12.3 percent gain in May.
But a survey by an industry association conducted before the data was released showed most of the bond market experts polled expected the Bank of Korea would keep interest rates unchanged on Thursday raising them last month.
Analysts said the Bank of Korea (BOK) would probably pass at Thursday's meeting so that it can assess the effect of the latest interest rate increase, but would seek to lift credit costs again later this year unless the economy suddenly tumbles. "Today's data reinforces the market's view that the BOK will raise interest rates further this year," said Shin Dong-suk, an economist at Samsung Securities. "We expect it to deliver an additional hike in interest rates in October or November."
The Korea Securities Dealers Association said on Monday that 90.8 percent of the bond market experts it surveyed forecast the Bank of Korea would keep the overnight call rate target unchanged at 4.75 percent on Thursday.
The association surveyed 166 people trading bonds or working at companies holding bond assets between July 27 and August 1. The central bank data and the survey result made little impact on local financial markets on Monday, when investors focused more on a global sell-off in riskier assets due to jitters about a credit squeeze.
Analysts said the timing of the Bank of Korea's next rate increase could now also be influenced by developments in global financial markets, thrown into turmoil by the souring in the US subprime loan sector.
South Korea's financial industry is little exposed directly to the US loan market, but its economy could be hit if the US loan market suffers because the United States is its second-biggest export market, analysts said. Central banks raise interest rates when they are sure the economy is strong enough to sustain growth even after interest rates are increased.
The Bank of Korea raised the overnight call rate target by a total of 1.5 percentage points between October 2005 and July this year to contain hot money growth, which policymakers are worried pushes up asset prices and eventually stokes inflation. Its monetary policy committee, which Governor Lee Seong-tae chairs, reviews interest rates on Thursday and is expected to announce its decision at around 0100 GMT.