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Key Points

South Korea's central bank reported an unexpected decline in money supply for the first time since April 2023. The M2 measure dropped 0.1% in March, primarily due to decreases in savings deposits and liquid financial products. Despite the monthly decline, the year-on-year money supply still grew by 6.1%. The Bank of Korea attributed the changes to local government fiscal spending and shifts in financial market activities.

Key Points: BOK Reports First Money Supply Drop in 23 Months

  • M2 money supply fell to 4,227.8 trillion won in March
  • Savings deposits dropped 7.2 trillion won
  • Year-on-year money supply still advanced 6.1%
  • Financial firms adjust incentive structures
3 min read

Money supply falls for 1st time in 23 months in March: BOK

South Korea's M2 money supply declines 0.1% in March, signaling shifts in savings and financial market dynamics

"Savings deposits declined due to fiscal spending by local governments - BOK Official"

Seoul, May 15

South Korea's money supply fell for the first time in 23 months in March, due mainly to a decline in savings deposits and other liquid financial products, central bank data showed on Thursday.

The country's M2, a key gauge of the money supply, stood at 4,227.8 trillion won (US$3.01 trillion) in March, down 0.1 percent from a month earlier, according to the preliminary data from the Bank of Korea (BOK), reports Yonhap news agency.

It marked the first monthly decline since April 2023. On a year-on-year basis, however, the money supply advanced 6.1 percent in March.

The M2 is a measure of the money supply that counts cash, demand deposits and other easily convertible financial instruments.

The on-month decline came as savings deposits fell 7.2 trillion won from the previous month and other liquid financial products dropped 5.7 trillion won. Financial bonds with maturities under two years also lost 4.8 trillion won.

But investment funds went up by 8.6 trillion won on-month and demand deposits increased 5.5 trillion won.

"Savings deposits declined due to fiscal spending by local governments, while other liquid financial products, particularly foreign currency deposits, went down as a result of overseas investments and import payment settlements," a BOK official said.

South Korea's liquidity aggregate, the broadest measure of money supply, edged up 0.3 percent from a month earlier to stand at 7,236 trillion won in March, the data showed.

Meanwhile, the country's financial watchdog said on Thursday that it will prod financial firms to manage their incentive systems in a proper and reasonable manner.

The Financial Supervisory Service (FSS) said incentive systems can carry risks if not properly managed, which also can hurt financial institutions' soundness as well as the financial stability in the broader sector.

Some financial firms have been under fire for offering hefty incentives to employees and C-suite executives despite soured real estate development projects.

Also, some financial firms have been lax in managing incentive systems in accordance with regulatory guidelines, the watchdog said.

Data from the FSS showed that banks, securities firms and other financial institutions doled out some 1.06 trillion won (US$758 million) worth of incentives such as performance-based pays, profit-sharing and commissions to employees and executives in 2023, down 8.8 percent from 1.16 trillion won the previous year.

Investment companies offered the largest 660 billion won worth of incentives to their employees and executives in 2023, down 9.5 percent from a year earlier, trailed by banks with 159 billion won, up 8.3 percent, and insurance firms with 143 billion won, down 18 percent.

—IANS

- IANS

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Reader Comments

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Rajesh K.
Interesting to see how South Korea's economy is performing. Their 6.1% yearly growth in money supply is still healthy despite the monthly dip. In India, we've seen similar fluctuations post-pandemic. Hope their financial regulators keep things stable - their tech sector is too important for global supply chains.
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Priya M.
The decline in savings deposits is concerning. Korean households must be feeling the pinch like we are in India with inflation. But their investment funds increasing shows people are looking for better returns. Maybe RBI should take notes on how they're managing liquidity. 🇮🇳
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Amit S.
$758 million in incentives seems massive! But it's actually down 8.8% from previous year. Indian companies could learn from Korea's financial watchdog pushing for responsible incentive management. We've seen what happens when bonuses aren't tied to proper performance metrics.
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Sunita R.
As someone working in finance, this data is fascinating. The shift from savings to investment funds mirrors what we're seeing in Indian markets. But 7,236 trillion won in liquidity aggregate? That's about ₹4,500 lakh crore! Puts our economy's scale in perspective.
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Vikram J.
While the numbers look concerning at first glance, the yearly growth shows resilience. Reminds me of when RBI had to manage similar situations. Hope this doesn't affect Indian companies doing business in Korea - we have major partnerships in electronics and automobiles.

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