Interest Rate Hike Boosts December Regular Savings and Time Deposits by 31.6 Trillion Won... Money Supply Decreases by 6.3 Trillion Won

[Asia Economy Reporter Seo So-jung] Amid a significant increase in regular savings and time deposits in December due to the base interest rate hike, the money supply turned to a decline in December for the first time in nine months.

According to the 'Money and Liquidity' statistics released by the Bank of Korea on the 14th, the average broad money supply (M2) balance in December was 3,779 trillion won, down 6.3 trillion won from November. The M2 money supply growth rate more than doubled from 0.3% in June and July to 0.7% in August, then maintained the previous month's level in September, rose to 0.4% in October and 0.7% in November, but fell to 0.2% in December.

The broad money supply indicator M2 includes cash, demand deposits, and checking deposits (M1), as well as money market funds (MMF), time deposits under two years, installment savings, beneficiary certificates, negotiable 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.

In particular, the phenomenon of investors flocking to regular savings and time deposits continued due to the interest rate hike. The Bank of Korea explained, "While regular savings and time deposits increased significantly due to preferences for safe assets, demand deposits for savings and money trusts decreased."

However, the year-on-year growth rate has been slowing since December last year (13.2%), with rates of 9.4% in April, 9.3% in May, 8.8% in June, 8.0% in July, 7.2% in August, 6.6% in September, 5.9% in October, 5.4% in November, and 4.5% in December.

Looking at M2 by financial product, regular savings and time deposits increased sharply by 31.6 trillion won compared to the previous month. On the other hand, demand deposits for savings decreased by 17.3 trillion won, marking the second-largest decrease ever, and money trusts under two years decreased by 14.5 trillion won, the largest decrease on record.

By economic agent, households and non-profit organizations increased by 11.1 trillion won, and other sectors by 3.4 trillion won, but corporations decreased by 18.9 trillion won.

Meanwhile, M1 (narrow money), a short-term fund indicator, decreased by 28.9 trillion won (2.3%) compared to the previous month due to a sharp decline in transaction deposits. On a month-to-month basis, it has decreased for six consecutive months: -1.0% in July, -1.5% in August, -1.7% in September, -1.9% in October, -2.7% in November, and -2.3% in December. Year-on-year, it decreased by 9.0%, continuing a four-month consecutive decline.

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