South Korea's Economic Momentum Continues with Rising Money Supply

In a clear sign of economic resilience, South Korea's broad money supply (M2) has seen a significant uptick, marking its 20th consecutive month of growth. According to the Bank of Korea's latest report, M2 reached an impressive 4,203.8 trillion won in January, a 0.5% increase from the previous month, totaling a 20.1 trillion won rise.

Investment Shifts Drive Currency Supply Growth

The increase in currency supply is primarily fueled by evolving investment behaviors. Notably, demand deposits surged by 5.5 trillion won, beneficiary certificates by 5.3 trillion won, and monetary trusts under two years by 4.7 trillion won. Money market funds (MMF) also saw a considerable increase of 4.5 trillion won.

Changing Financial Landscape Influences Savings and Deposits

Conversely, there was a noticeable decrease in time deposits and installment savings under two years, dropping by 5.9 trillion won, alongside a 2.1 trillion won reduction in financial bonds under two years. A Bank of Korea official attributed these shifts to lower time deposit interest rates and a slowdown in loan growth, prompting investors to seek more liquid financial products.

Economic Entities Respond to Financial Dynamics

The distribution of liquidity across various economic entities underscores the varied impact of these financial changes. Corporations experienced a liquidity increase of 21.2 trillion won, other financial institutions by 7.8 trillion won, and households and non-profit organizations by 3.9 trillion won. However, social security organizations saw a decrease of 1.8 trillion won.

Narrow Money Supply Reflects Preference for Liquidity

The narrow money supply (M1), encompassing cash, demand deposits, and savings deposits, also grew by 0.6% (7.4 trillion won) from the previous month, reaching 1,277.5 trillion won. This growth highlights a growing preference for liquid assets in response to fluctuating interest rates and investment strategies.