Surge in Money Supply Due to COVID-19... How Far Will the Liquidity Market Go?

Market Money Supply Approximately 3,077 Trillion Won... Rapidly Increasing

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] To overcome the novel coronavirus disease (COVID-19) crisis, the government has been injecting massive funds and lowering the base interest rate, leading to a continued increase in the money supply in the market. In particular, the money supply in the household and non-profit sectors is also rising, suggesting that the liquidity-driven market in assets such as real estate and stocks is likely to continue for the time being.

According to the "Monetary and Liquidity Status in June" released by the Bank of Korea on the 13th, the M2 (broad money supply) in June was confirmed at 3,077.776 trillion won. This is an increase of 23.1509 trillion won (0.8%) compared to the previous month. Although this increase is smaller than the record-breaking rise in May (35.3716 trillion won), it still represents a 9.9% increase compared to the same period last year, matching the highest year-on-year growth rate recorded in May (9.9%) since statistics began.

M2 includes cash, demand deposits, and checking deposits (collectively M1), as well as short-term financial products such as money market funds (MMFs) and time deposits with maturities under two years. It can be considered as funds that can be immediately converted into cash.

In particular, the household sector's M2 showed a significant increase in June. By sector, the money supply increased by 16.9 trillion won in households and non-profit organizations, 9.1 trillion won in corporations, and 2.7 trillion won in other financial institutions.

The increase in household sector M2 was the largest since May 2006 (approximately 21 trillion won), related to the rise in household loans. In the early stages of COVID-19, the injected funds mainly flowed into corporate loans, but recently, the sharp rise in real estate prices has coincided with a surge in household loans, which has had a significant impact.

An official from the Bank of Korea stated, "Loans are immediately counted as M2, which can be converted into cash, and household loans in June expanded by about 3.1 trillion won compared to the May increase (5 trillion won), reaching 8.1 trillion won." While mortgage loans also increased, other loans (such as credit loans) related to funds for public offering subscriptions also rose sharply.

By product, among financial products, demand deposits (+14.4 trillion won) and checking deposits (+6.2 trillion won) increased, but less profitable time deposits under two years decreased by 4.8 trillion won.

As the money supply in the market continues to increase, it is judged that the asset price rise driven by liquidity will continue for the time being. Experts expect the era of abundant liquidity to last for a long time. In particular, since the government is making every effort to curb the sharp rise in real estate prices through strong real estate regulations, it is analyzed that the stock market will especially surge. The KOSPI index, which fell to around 1,400 points in early March during the initial spread of COVID-19, is recently approaching the 2,500-point level.

Kim Jungwon, an analyst at Hyundai Motor Securities, said, "Due to the asset price bubble triggered by COVID-19, most asset prices including commodities, stocks, and real estate are rising, and the KOSPI index, which has high expectations for earnings improvement compared to major countries, has also risen significantly," adding, "The historical high of the KOSPI was 2,598.2 points on January 29, 2018, and it is expected that this historical high could be surpassed by the end of this year."

This content was produced with the assistance of AI translation services.