Money supply in March falls for the 1st time in more than 3 years

SEOUL, May 12 (Yonhap) — South Korea’s money supply shrank for the first time in more than three years in March as higher interest rates led to lower money flows to markets. debt, central bank data showed on Thursday.

The country’s M2, a key indicator of money supply, averaged 3,658.5 trillion won ($2.85 trillion) in March, down 0.1 percent from the previous month, according to preliminary data from the Bank of Korea (BOK).

This is the first monthly decline in M2 since September 2018. M2 is a measure of money supply that counts cash, demand deposits and other readily convertible financial instruments.

The March drop was attributed to lower money flows to trust funds and money market funds (MMFs) which primarily invest in the debt market.

The bond market was shaken as interest rates rose alongside central bank rate hikes aimed at containing inflation. Bond prices and yields move in opposite directions.

Money flows to trusts and money market funds fell 10.5 trillion won and 8.9 trillion won, respectively, in March from the previous month, the data showed. Bank savings, however, increased by 8.2 trillion won over the same period.

In April, the BOK raised borrowing costs by a quarter of a percentage point to 1.5% as it grappled with rising inflation. It was the fourth rate hike since August last year.

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