Korea’s money supply grows 5.5% in May

Korea’s money supply grew at the 5-percent range for the fourth straight month in May, the central bank said Wednesday, underscoring concerns about inflation risks.

South Korea’s M2, a narrow measure of the money supply, amounted to 1,784.2 trillion won ($1.6 trillion) in May, up 5.5 percent from a year earlier, according to the Bank of Korea.

In April, the M2 grew an identical 5.5 percent from the year before and the growth of the M2 stayed within the 5-percent range for the fourth straight month in May.

On a seasonally adjusted basis, the country’s M2 grew 0.3 percent in May from the previous month, slowing from a 0.6 percent expansion in April.

The M2 covers currency in circulation and all types of deposits with a maturity of less than two years at lenders and non-banking financial institutions, excluding those held by insurers and brokerage houses.

The bank said that economic uncertainty from the eurozone debt woes made households put more money into bank time deposits in May.

But during the cited period, bank lending remained lackluster and foreigners pulled their stock funds out of Seoul markets.

The growth of South Korea’s money supply largely accelerated after M2 growth hit a seven-year low of 3 percent in June 2011, it added.

The M2 largely grew at a double-digit pace for about 3 years since 2006 when liquidity spiked concurrently with property market bubbles.

The impact of the 2008 global financial crisis, however, made the on-year growth of the M2 slow sharply as banks were wary of extending loans.

The BOK said in a separate statement that South Korea’s M2 is estimated to have grown at the upper-5 percent range in June as the government increased fiscal spending despite slowing banks’ lending.

South Korea’s liquidity aggregate, the broadest measure of the money supply, expanded 9.2 percent in May from a year earlier, picking up from an 8.6 percent gain in the previous month, it added.

The liquidity aggregate covers currency in circulation and all types of deposits at financial institutions and state and corporate bonds.

Although banks are widely wary of extending loans amid the slowing economy, overall liquidity in the financial system is deemed ample, experts say.

The financial watchdog recently called for the BOK to do its part in managing liquidity as a way to solve household debt problems, making the central bank uncomfortable.

The data came one day before BOK policymakers are to hold their monthly rate-setting meeting. The BOK is widely expected to freeze the key interest rate at 3.25 percent for the 13th straight month, but a handful of analysts are betting on a rate cut this month, citing global central banks’ moves to ease policies. 

(Yonhap News)