Korea’s Money Supply Continues to Grow in July

Bank of Korea officials deliver cash in Seoul’s southern Gangnam district ahead of Korea’s Chuseok harvest holiday on September 5. [YONHAP]

Korea’s money supply continued to grow in July, mainly due to increased deposits as people flee to safer assets.

According to the central bank, M2 rose 8.0% in July year on year, driven by a surge in deposits as people shifted their investments to safer assets amid rapidly rising interest rates.

Growth slowed from 8.8% the previous month. The growth rate has been declining since registering 13.2 percent in December 2021, according to the Bank of Korea.

On the month, M2 rose 0.3% to 3,719.5 trillion won ($2.664 billion).

M2 is a measure of the money supply that includes all of the components of M1 plus “quasi money” such as savings deposits, money market securities, and easily cashable mutual funds. M1 refers to cash and check deposits.

In July, installment savings and term deposits jumped 21.6 trillion won from the previous month, while money market deposit accounts fell 9.3 trillion won.

Households and non-profit organizations led growth in installment savings and term deposits. Deposits held by businesses also increased as their foreign currency deposits grew, the central bank said.

M1 rose 5.3% year-on-year, but its growth continued to decline from 26% last February.

Over the month, M1 fell 1,362.3 trillion won, or 1.0%.

A country’s money supply has a significant effect on its interest rates and inflation.

The growth of the money supply in Korea as well as external factors, including the strengthening of the US dollar, accelerated inflation and forced the central bank to quickly raise its base interest rate.

Inflation in Korea was 5.7% in August, after hitting 6.3% in July, the highest in nearly a quarter century.

The central bank quickly raised the rate to 2.50% in August, from 0.5% last July, and signaled that there may be further interest rate hikes to keep inflation in check.

The Bank of Korea’s Monetary Policy Board has two more meetings to decide the rate this year. The next meeting will be on October 12, then again on November 24.

Their decision will be affected by the US Fed’s two-day FOMC meeting, which is due to begin on September 20.

Fed Chairman Jerome Powell reaffirmed his stance in favor of continued monetary tightening during a speech at the Jackson Hole meeting in August, where he said the central bank would “use our tools forcefully “.

BY JIN MIN-JI[[email protected][[email protected][[email protected][[email protected]

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