July Money Supply Growth Rate Surpasses 10%... Highest in About 11 Years

Bank of Korea 'Monetary and Liquidity in July 2020'
Highest Growth Rate Since 10.5% in October 2009

[Asia Economy Reporter Kim Eun-byeol] To mitigate the shock of the novel coronavirus infection (COVID-19), a large amount of money was injected into the market, causing the broad money supply (M2) to reach 3,092.8 trillion KRW. The M2 growth rate, which had been rising since September 2017, exceeded 10%.

According to the "Monetary and Liquidity Statistics for July 2020" released by the Bank of Korea on the 11th, M2 in July was 3,092.8 trillion KRW, up 0.5% from the previous month. Compared to the same month last year, it increased by 10.1%, surpassing the 10% growth rate. This is the highest growth rate since October 2009 (10.5%). The year-on-year M2 growth rate rose from 7.8% in January this year to 9.1% in April, and 9.9% in both May and June. In terms of amount, 15.7 trillion KRW was added in July alone.

M2 is an indicator showing the broad money supply, including cash, demand deposits, various savings deposits, money market funds (MMF), and time deposits with maturities under two years. Long-term financial products with low liquidity are excluded. A Bank of Korea official explained, "The increase compared to the previous month was due to continued credit supply mainly in the corporate sector."

By product, demand deposits and savings deposits with frequent withdrawals (+13.7 trillion KRW), demand deposits (+3.2 trillion KRW) increased, but time deposits under two years (-8.5 trillion KRW) decreased.

By economic agents, corporations (+11.5 trillion KRW) and households and non-profit organizations (+11.5 trillion KRW) increased significantly, and other financial institutions (+1.8 trillion KRW) also showed an upward trend. The other sector decreased by 8.8 trillion KRW, mainly due to reductions in demand deposits and time deposits under two years, related to local government fiscal spending.

Due to COVID-19 uncertainties, short-term funds that can be withdrawn as cash at any time have increased, causing narrow money supply (M1) to grow rapidly as well. M1 in July was 1,077.2 trillion KRW, up 1.8% from the previous month and 23.0% from the same month last year.

M1 refers to cash currency, demand deposits, and savings deposits with frequent withdrawals. The share of M1 in M2 was 34.82% in July, higher than 34.38% in June.

The Bank of Korea is closely monitoring the situation as a significant increase in short-term funds in the market could lead to a concentration in asset markets. In the monetary credit policy report released the day before, it advised, "Attention should be paid to the possibility that short-term funds may flow into asset markets in pursuit of returns," and "It is difficult to rule out the continued inflow of funds into the housing market through household loans in the future."

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