Money supply drops for 1st time in over 3 years in March

The Bank of Korea / Yonhap

Korea's money supply shrank for the first time in more than three years in March, as rising interest rates drove down the money flow into debt markets, central bank data showed Thursday.

The country's M2, a key gauge of the money supply, stood at 3,658.5 trillion won ($2.85 trillion) on average in March, down 0.1 percent from a month earlier, according to the preliminary data from the Bank of Korea (BOK).

This marked the first month-on-month decline in M2 since September 2018. M2 is a measure of the money supply that counts cash, demand deposits and other easily convertible financial instruments.

The March decline was attributed to falls in money flows into trust and money market funds (MMFs) that mostly invest in the debt market.

The bond market was rattled, as interest rates have been rising in line with the central bank's rate hikes aimed at reining in inflation. Bond prices and yields move in opposite directions.

The money flow into trusts and MMFs shrank 10.5 trillion won and 8.9 trillion won, respectively, in March from a month earlier, the data showed. Bank savings, however, expanded 8.2 trillion won over the same period.

In April, the BOK raised borrowing costs by 25 basis points to 1.5 percent as it grapples with rising inflation ― the fourth rate increase since August last year. (Yonhap)