Increase in Regular Savings and Time Deposits in October Hits Record High Amid Interest Rate Hikes... Money Supply Rises by 13.8 Trillion Won

Demand Deposit Savings Accounts Show Record Largest Decline Ever

[Asia Economy Reporter Seo So-jeong] Amid the record increase in regular savings and time deposits in October due to the base interest rate hike, the money supply in October increased by 13.8 trillion KRW.

According to the 'Money and Liquidity' statistics released by the Bank of Korea on the 13th, the average broad money supply (M2) balance in October was 3757.9 trillion KRW, up 13.8 trillion KRW from September. The M2 money supply growth rate more than doubled from 0.3% in June and July to 0.7% in August, maintained the previous month's level in September, and recorded 0.4% in October.

The broad money supply indicator M2 includes cash, demand deposits, and checking deposits (M1), as well as money market funds (MMF), time deposits under two years, installment savings, beneficiary certificates, negotiable certificates of deposit (CD), repurchase agreements (RP), financial bonds under two years, and money trusts under two years?short-term financial products that can be quickly converted into cash.

In particular, following the interest rate hike, investors have flocked to regular savings and time deposits, sustaining the M2 growth trend. The Bank of Korea explained, "With the continued rise in interest rates and preference for safe assets, regular savings and time deposits increased significantly, while checking deposits and other savings deposits decreased sharply." However, the year-on-year growth rate has been declining since December last year (13.2%), with rates of 9.4% in April, 9.3% in May, 8.8% in June, 8.0% in July, 7.2% in August, 6.6% in September, and 5.9% in October.

Breaking down M2 by financial products, regular savings and time deposits surged by 45.9 trillion KRW compared to the previous month, marking the largest increase since statistics began in December 2001. Conversely, checking deposits and demand deposits decreased by 16.1 trillion KRW and 8.7 trillion KRW, respectively. MMFs also declined by 13.1 trillion KRW.

Checking deposits saw a sharp drop of 11.7 trillion KRW in September, and the outflow accelerated further, recording the largest decrease ever.

By economic agents, corporations (9.2 trillion KRW) and households and nonprofit organizations (7.5 trillion KRW) increased mainly in regular savings and time deposits, while other financial institutions (-13.8 trillion KRW) decreased mainly in money trusts and MMFs.

Meanwhile, M1 (narrow money), a short-term fund indicator, decreased by 24.8 trillion KRW (1.9%) from the previous month due to a decline in transaction deposits. It has fallen for four consecutive months compared to the previous month: -1.0% in July, -1.5% in August, -1.7% in September, and -1.9% in October. The year-on-year change rate was -3.5%, continuing the downward trend from last month.