Expectations of Interest Rate Cuts... Market Liquidity Increases for 14 Consecutive Months

On the 5th, officials are supplying Chuseok currency at the Bank of Korea Currency Deposit Center in Jung-gu, Seoul. Photo by Joint Press Corps

Market liquidity continues to increase due to expectations of a U.S. interest rate cut.

According to the 'July Monetary and Liquidity Trends' report released by the Bank of Korea on the 13th, broad money supply (M2) in July recorded 4,053.9 trillion won, up 0.4% from the previous month. M2 has been rising for 14 consecutive months since June last year (0.3%).

M2 is a broad monetary indicator that includes narrow money (M1) such as cash, demand deposits, and savings deposits with check-writing privileges, as well as money market funds (MMF), time deposits under two years, beneficiary certificates, and repurchase agreements (RP).

By financial product, beneficiary certificates (+10.8 trillion won), other monetary products (+5.8 trillion won), and time deposits (+5.3 trillion won) increased, while savings deposits with check-writing privileges (-5.9 trillion won) and financial bonds under two years (-3 trillion won) decreased.

Beneficiary certificates saw a sharp increase mainly in short-term bond funds due to strengthened expectations of a U.S. interest rate cut, and other monetary products turned to an increase as funds flowed into foreign currency deposits and comprehensive asset management accounts (CMA). The Bank of Korea explained that time deposits increased due to recognition of peak interest rates and banks' efforts to attract funds.

Savings deposits with check-writing privileges decreased mainly in local governments, and financial bonds turned to a decrease as monetary stabilization bonds and bank bonds were net repaid.

By economic agents, households and non-profit organizations (+18.9 trillion won), other financial institutions (+4.3 trillion won), and corporations (+3.6 trillion won) increased, while other sectors (-2.3 trillion won) decreased.

The average balance of M1 in July was 1,216.6 trillion won, down 4 trillion won from the previous month due to a decrease in savings deposits with check-writing privileges. Financial institution liquidity (Lf) increased by 9.8 trillion won compared to the previous month.