The demand for short-term cash reserves has increased, leading to a seven-month consecutive rise in the money supply. With cash inflows primarily from semiconductor companies and an expansion in corporate short-term fund management, broad money (M2) continued its upward trend.
According to the Bank of Korea's 'Monetary and Liquidity' statistics released on July 15, the average broad money supply (M2) in May was 418.44 trillion won, an increase of 32.2 trillion won (0.8%) from the previous month. This marks the seventh consecutive month of growth since November of last year.
The broad money indicator M2 includes cash, demand deposits, and checking accounts, as well as short-term financial products that can be quickly converted to cash, such as money market funds (MMFs), time deposits and savings accounts with maturities of less than two years, certificates of deposit (CDs), repurchase agreements (RPs), financial bonds with maturities of less than two years, and monetary trusts with similar maturities.
Typically, an increase in M2 is interpreted as a sign that more funds are circulating in the market. In times of heightened market uncertainty, idle funds tend to remain in short-term financial products, contributing to an expansion in the money supply.
Including income securities, the previous M2 average reached 478.9 trillion won, reflecting a 2.2% increase from the previous month and an 11.7% rise compared to the same month last year. The year-over-year growth rate for income securities was 61.7%.
By product, the increase in corporate short-term cash reserves and the expansion of funds managed by some other financial institutions in the securities and derivatives markets saw a significant rise from 7 trillion won to 24.3 trillion won. Monetary trusts with maturities of less than two years shifted from a decrease of 3.2 trillion won to an increase of 3.8 trillion won, influenced by cash inflows from semiconductor companies.
By economic entity, non-financial corporations increased by 30.1 trillion won. Other financial institutions and other sectors saw increases of 11.8 trillion won and 3 trillion won, respectively. Households and non-profit organizations experienced a decrease of 19 trillion won.
The narrow measure of money supply, M1, which includes only cash, demand deposits, and checking accounts, averaged 1,398.2 trillion won, up 1.9% from the previous month.
Liquidity in financial institutions (Lf) rose by 1.4% from the previous month to 6,309 trillion won. Broad liquidity (L) increased by 1.1% to 8,053.8 trillion won.
* This article has been translated by AI.
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