As Interest Rates Rise, Money Flows into Savings and Time Deposits... Money Supply Increases by 25 Trillion Won in August

Lee Chang-yong, Governor of the Bank of Korea, is explaining the base interest rate hike at a press conference held at the Bank of Korea in Jung-gu, Seoul on the 12th. Photo by Joint Press Corps

Due to the steep increase in the benchmark interest rate, the scale of regular savings and time deposits has expanded to an all-time high, resulting in an increase of approximately 25 trillion won in the money supply in August.

According to the 'Money and Liquidity' statistics released by the Bank of Korea on the 18th, the average broad money supply (M2) balance in August was 3,744.1 trillion won, up 24.6 trillion won (0.7%) from July. The M2 money supply growth rate more than doubled from 0.3% in June and July to 0.7% in August.

The broad money supply indicator M2 includes cash, demand deposits, and checking deposits (all M1), as well as money market funds (MMF), time deposits under two years, installment savings, beneficiary certificates, certificates of deposit (CD), repurchase agreements (RP), financial bonds under two years, and money trusts under two years?short-term financial products that can be quickly converted into cash.

The Bank of Korea explained, "Investors who borrowed during the COVID-19 period and invested in bonds not included in M2 are now flocking to regular savings and time deposits following the interest rate hikes, sustaining the increase in M2."

However, the year-on-year growth rate has been declining since last December (13.2%), with rates of 9.4% in April, 9.3% in May, 8.8% in June, 8.0% in July, and 7.2% in August, showing a slowdown trend.

Looking at M2 by financial product, regular savings and time deposits increased by 34.1 trillion won, and money trusts increased by 5 trillion won compared to the previous month. Conversely, demand deposits and checking deposits decreased by 11.1 trillion won and 10.1 trillion won, respectively.

Regular savings and time deposits saw the largest increase since the new monetary indicator was compiled in December 2001, while demand deposits and checking deposits experienced the largest decrease.

By economic agents, households and non-profit organizations increased regular savings and time deposits by 15.6 trillion won, other sectors by 2.3 trillion won, and other financial institutions by 4 trillion won.

Meanwhile, the short-term money supply indicator M1 (narrow money) decreased by 20.4 trillion won (1.5%) compared to the previous month due to a decline in transaction deposits. This marks the second consecutive month of decline following July (-1.0%). The year-on-year growth rate recorded 2.5%, but the increase has continued to slow since February last year (26.0%).

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