February Money Supply Increased by 21.8 Trillion Won... Rise in Time Deposits and MMF Due to Risk Aversion

[Asia Economy Reporter Seo So-jeong] The amount of money circulating in the market increased by 21.8 trillion KRW in February this year. By product, demand deposits with less than 2 years fixed-term savings and Money Market Funds (MMF) increased.

On the 12th, the Bank of Korea announced through the 'Monetary and Liquidity Data for February 2022' that the broad money supply (M2, average balance basis) as of February was 3,662.6 trillion KRW, an increase of 21.8 trillion KRW (0.6%) compared to the previous month. The year-on-year growth rate was 11.8%, down from 12.7% in the previous month.

Broad money supply includes narrow money (M1), which consists of cash, demand deposits, and savings deposits with check-writing privileges, plus MMF, fixed-term savings and deposits under 2 years, financial bonds, money trusts, beneficiary certificates, negotiable certificates of deposit (CD), repurchase agreements (RP), and commercial papers.

By financial product, fixed-term savings and deposits surged by 19.9 trillion KRW, and MMF increased by 5.6 trillion KRW. The Bank of Korea explained that the increase in fixed-term savings and deposits was due to rising deposit interest rates and financial institutions' efforts to attract funds to manage the loan-to-deposit ratio.

By economic agents, the money supply increased by 15.6 trillion KRW in households and non-profit organizations, and by 10.5 trillion KRW in corporations.

A Bank of Korea official said, "Despite a decrease in loans due to continued household loan regulations, the risk-averse tendency has strengthened, leading to continued sales of alternative assets such as stocks and virtual currencies, resulting in an increase centered on fixed-term savings and deposits." He added, "Corporations increased due to continued loan growth and fund inflows from improved product balances."

The narrow money supply, M1, which includes only cash, demand deposits, and savings deposits with check-writing privileges, was 1,353.3 trillion KRW, a 0.1% increase from January.