Korea’s Money Supply Grows at Record Rate for Leveraged Investments (BOK)

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[Graphics by Song Ji-yoon]

Money supply in South Korea has grown at a record pace this year largely for leveraged investments rather than economic activities, adding to already high inflationary pressures and household debt that is cited as the biggest risks to the country’s financial system, according to the country’s central bank. .

According to the report on monetary policy to lawmakers, the Bank of Korea (BOK) said the money supply in the country has grown at a rapid pace, driven by the constant demand for loans from households and businesses for transactions. real estate and the fight against the protracted pandemic.

Data from the central bank showed that the country’s M2 growth rate reached 11-12% year-on-year in the second half of this year, well above the nominal GDP growth rate of around 6% during from the same period.

M2 is a key indicator of money supply that includes cash, check deposits, and readily convertible quasi-currency such as money market funds (MMFs), installment savings, certificates of deposit, and repo agreements. (RP) with a maturity of less than two years.

“Asset price factors such as house prices played a bigger role than actual growth factors in the country’s latest money supply growth streak,” a central bank official said.

The BOK has warned that there is a higher risk that excessive funds will be redirected to the already overheated real estate market if the current rate of growth continues.

Concerns about inflation are also on the rise. The country’s consumer price index rose 3.7% in November from a year earlier, the fastest rise in nearly a decade. The average global inflation rate of 34 major economies stood at 4.39% in October, the highest since the 2008 financial crisis.

According to the central bank report, the correlation coefficient between the world inflation rate and the domestic consumer price climbed to 0.78 over the period 2010-2021 against 0.28 between 2000 and 2007. An increase in One point of global inflation translates to 0.26%. points of increase in domestic prices in 2010-2021, against 0.1 points of increase in 2000-2007.

A recent BOK survey of 80 financial experts said household debt, inflation and uncertainties about global monetary policies, including the US Federal Reserve’s debt reduction plan, are the most great risks to the country’s financial system.

By Lee Soo-min

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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