Due to Low Interest Rates
South Korea’s money supply (M2), including household cash holdings and savings, increased by nearly 45 trillion won (US$39.42 billion) in the first six months this year. The figure is the largest in seven years after the second half of 2009.
According to the Bank of Korea on August 12, households and nonprofits held 1.318 quadrillion won (US$1.16 trillion) out of the total M2 balance of 2.463 quadrillion won (US$2.16 trillion) as of late June.
Households’ M2 holdings reached 44.6 trillion won (US$39.07 billion) in the first half of the year, up 3.5 percent from a year earlier. It showed a whopping 7.09 trillion won (US$6.21 billion) growth from 37.51 trillion won (US$32.86 billion) in the second half of last year. By quarter, the figure is the largest in seven years and six months after 44.6 trillion won (US$39.07 billion) in the second half of 2009.
Households’ M2 money supply grew due to the abundant market liquidity caused by the prolonged period of low interest rates. Also, higher-income groups saved up more cashable assets. They tend to increase their savings owing to anxiety about the quality of their lives after retirement and prefer risk free assets.
In addition, there is a considerable amount of floating funds that were unable to find investment outlets. Lee Chang-sun, a senior researcher at the LG Economic Research Institute, said, “With the current low interest rates, households have continuously increased short-term operational funds.”
Meanwhile, businesses’ M2 money supply started to clearly flatten out. The M2 holdings held by public and private companies rose by as low as 1.88 trillion won (US$1.64 billion) in the first half of the year to 640.98 trillion won (US$561.53 billion) at the end of June. The increase is the 8.5 percent level of 21.94 trillion won (US$19.22 billion) in the second half of last year.