"Now is the Interest Rate Peak"... Market Liquidity Up for 15 Consecutive Months

August Currency and Liquidity

As expectations for interest rate cuts build and the perception that interest rates have peaked takes hold, money is flowing into time deposits and savings accounts, continuing the upward trend in market liquidity.

Five days before the Lunar New Year holiday, cash transportation personnel are working on releasing funds for the Lunar New Year to be supplied to commercial banks at the Bank of Korea headquarters in Jung-gu, Seoul. Photo by Joint Press Corps

According to the "August Monetary and Liquidity" report released by the Bank of Korea on the 16th, the average balance of broad money supply (M2, seasonally adjusted) in August reached KRW 4,062.6 trillion, up 0.2% from the previous month. M2 has been on the rise for 15 consecutive months since June last year (0.3%).

M2 is a broad monetary indicator that includes narrow money (M1) such as cash, demand deposits, and savings deposits with check-writing privileges, as well as money market funds (MMF), time deposits under two years, beneficiary certificates, and repurchase agreements (RP).

By product, time deposits and savings accounts increased by KRW 11.5 trillion, and other monetary products rose by KRW 3.8 trillion, while MMFs decreased by KRW 4.6 trillion and financial bonds fell by KRW 2.5 trillion.

Time deposits and savings accounts increased due to banks' efforts to attract funds to manage loan-to-deposit ratios and deposit demand driven by the perception of peak interest rates. Other monetary products grew mainly in foreign currency deposits and cash management accounts (CMA), attributed to strong exports and increased investment standby funds amid stock market volatility, the Bank of Korea explained.

Financial bonds decreased mainly in bank bonds due to early issuance in the first half of the year in preparation for the gradual normalization of the Liquidity Coverage Ratio (LCR) and deferred issuance in the second half amid expectations of interest rate cuts.

By economic agent, other financial institutions increased by KRW 6.3 trillion, and households and nonprofit organizations rose by KRW 5.1 trillion. Conversely, other sectors decreased by KRW 2 trillion, and corporations fell by KRW 0.5 trillion.

The average balance of M1 in August was KRW 1,217.8 trillion, turning to a 0.1% increase from the previous month, centered on savings deposits with check-writing privileges. Financial institution liquidity (Lf) turned to a 0.1% decrease from the previous month.

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