Money supply growth exceeds 5% for 4th month

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Money supply growth exceeds 5% for 4th month

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

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. On a seasonally adjusted basis, it moved up 0.3 percent month-on-month in May, slowing from a 0.6 percent expansion in April.

The M2 covers the 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 euro zone debt woes has made households put more money into bank 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 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 from 2006 when liquidity spiked 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 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. 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 the currency in circulation and all types of deposits at financial institutions and state and corporate bonds.

Although banks are 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.


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