Companies Secure 30 Trillion Won in Cash Assets in March... Record High

Photo by Asia Economy DB

[Asia Economy Reporter Kim Eun-byeol] The money supply in the market in March increased at the fastest pace in 4 years and 5 months. As concerns over the novel coronavirus infection (COVID-19) grew, companies sought to secure liquidity, leading to the largest-ever increase in the amount of money held by companies.

According to the 'Money and Liquidity in March 2020' statistics released by the Bank of Korea on the 13th, the growth rate of the money supply (based on M2) in March was 8.4% year-on-year, the highest since October 2015 (8.8%). Compared to last month (8.2%), the growth rate rose by 0.2 percentage points.

M2 is a broad money indicator that includes cash, demand deposits, and checking deposits (all M1), as well as short-term financial products such as money market funds (MMF) and time deposits and savings deposits with maturities under two years. The M2 growth rate has been on an upward trend since September 2017.

The month-on-month M2 growth rate (seasonally adjusted, average balance basis), which reflects short-term changes in money supply, was recorded at 0.9%. By economic agents, M2 holdings increased by KRW 30.4 trillion for companies, KRW 3.9 trillion for other sectors, and KRW 1.5 trillion for households and non-profit organizations. Conversely, other financial institutions saw a decrease of KRW 4.9 trillion.

The M2 holdings of companies increased to the largest scale since the statistics compilation began in December 2001. Due to companies' efforts to secure liquidity amid COVID-19 and government policy financial support, funds flowed significantly into demand and savings deposits. A Bank of Korea official explained, "This is due to the expansion of credit supply to the corporate sector."

By product, increases were centered on settlement deposits such as demand and savings deposits (+KRW 15.2 trillion in savings deposits, +KRW 12.3 trillion in demand deposits).