Stock Market Rally Drives 44 Trillion Won Increase in Money Supply in May

Average M2 Balance in May Reaches 4,279.8 Trillion Won, Up by 44 Trillion Won
Beneficiary Certificates Rise by 16.4 Trillion Won, Driven by Equity Securities

In May, the amount of money circulating in the market increased by 44 trillion won, marking the second consecutive month of growth in the money supply. This was mainly due to an increase in beneficiary certificates, particularly those related to equity securities, amid a bullish stock market.

An employee is organizing 50,000 won bills at the headquarters of Hana Bank in Jung-gu, Seoul.

According to the Bank of Korea on July 15, the seasonally adjusted average balance of broad money (M2) in May was 4,279.8 trillion won, up by 44 trillion won (1.0%) from the previous month. M2 had already increased by 0.2% in April, continuing its growth for a second month. M2 is a broad measure of the money supply that includes cash, demand deposits, and transferable savings deposits (which make up narrow money, or M1), as well as money market funds (MMFs), time deposits and installment savings with maturities of less than two years, beneficiary certificates, and repurchase agreements (RPs).

By financial product, beneficiary certificates saw a sharp increase of 16.4 trillion won compared to the previous month. A Bank of Korea official explained, "The recovery in the stock market led to an increase, particularly in equity-related securities."

Money trusts and transferable savings deposits also rose by 8.3 trillion won and 6.1 trillion won, respectively. A Bank of Korea official stated, "The increase in money trusts was influenced by a rise in funds from the issuance of asset-backed commercial paper (ABCP) for time deposits," and added, "Transferable savings deposits increased due to the inflow of funds earmarked for local government fiscal spending."

On the other hand, demand deposits decreased by 2.3 trillion won due to the withdrawal of idle funds for investment purposes as the asset market recovered.

By economic sector, other financial institutions increased their holdings by 19.7 trillion won, mainly in time deposits and beneficiary certificates. Corporations increased their holdings by 17 trillion won, mainly in MMFs and beneficiary certificates, while households and nonprofit organizations increased their holdings by 13.9 trillion won, mainly in beneficiary certificates and time deposits. The other sectors decreased by 5.4 trillion won.

The average balance of M1 was 1,277.1 trillion won, up by 4.6 trillion won from the previous month, marking a 0.4% increase, mainly due to a rise in transferable savings deposits.