By Kim Jae-kyoung
Staff Reporter
The nation's money supply grew at its fastest pace in almost nine years, fueled by an increase in financial institutions' lending to households and corporations.
The Bank of Korea (BOK) reported Wednesday that M2, a broad category within the money supply, jumped 14.9 percent in April from a year ago, the biggest monthly increase since June 1999 when it soared 16.1 percent.
M2 includes all physical money such as coins and notes, as well as demand deposits. This is used to quantify the amount of money in circulation.
Since the beginning of the year, the M2 growth rate accelerated by 12.5 percent in January, 13.4 percent in February and 13.9 percent in March.
``The growth in money supply will later put further pressure on inflation,'' BOK economist Lee Sang-yong said.
``Since the money supply has been growing at a fast pace, we are keeping a close watch on the movement of capital,'' he added.
The central bank said that the rapid growth in money supply was mainly due to ample liquidity provided by financial institutions.
The liquidity aggregate also grew 14.6 percent from a year earlier, the biggest jump in more than five years. The liquidity aggregate, the broadest measure of money supply, covers all types of deposits at financial institutions, state and corporate bonds plus M2.
The rapid growth in money supply is expected to add to growing inflationary pressure, giving more leeway for the central bank to keep the key interest rate intact one more time at its monetary policy committee meeting today.
The central bank has kept the benchmark short-term interest rate unchanged at 5 percent for the past nine months in a row, due to growing inflationary pressure propelled by high-flying oil costs and the Korean won's weakness.
Consumer price growth hit a seven-year high of 4.9 percent in May, well above the BOK's target of 2.5-3.5 percent.
The inflationary pressure has weighed heavily on local financial markets.
Yields on three-year treasury bonds jumped to 5.78 percent on Tuesday, up 90 basis points from the end of April, while the local stock market plunged to close at 1,781.