Dec. 9 (Bloomberg) -- South Korea’s won dropped this week as concern Europe will fail to reach agreement to contain the region’s debt crisis dimmed the outlook for the global economy. Government bonds retreated.
The currency slid the most in four weeks today as European Central Bank President Mario Draghi damped speculation the bank will buy more government bonds. European Union leaders began their two-day summit in Brussels yesterday. South Korea’s economy is likely to grow 3.7 percent next year, slowing from a 3.8 percent gain this year, the Bank of Korea said today. Inflation is forecast at 3.3 percent, compared with 4 percent in 2011, the central bank said.
“The weak forecast for the economy is supporting demand for the dollar,” said Byeon Ji Young, a Seoul-based currency analyst at Woori Futures Co. “Draghi’s comments disappointed the market, and investors are concerned the European summit results won’t match expectations.”
The won fell 1.4 percent this week to 1,146.83 per dollar in Seoul, according to data compiled by Bloomberg. The currency dropped 1.3 percent today, the biggest decline since Nov. 10. The Kospi Index of shares declined 2.2 percent this week.
The Bank of Korea held borrowing costs at 3.25 percent for a sixth month yesterday. Downside risks to growth are “high” because of the European turmoil, possible slumps in major economies and unrest in international financial markets, the central bank said in its statement yesterday. The ECB cut its benchmark rate by 25 basis points to 1 percent yesterday.
The yield on South Korea’s 3.5 percent bonds due September 2016 climbed two basis points, or 0.02 percentage point, to 3.52 percent this week, according to Korea Exchange Inc. prices. The rate was unchanged today.
--Editors: Sandy Hendry, Brett Miller
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