In March, the money supply (M2) decreased for the first time in 23 months, falling to 4,227.8 trillion won. This is attributable to weakened financing incentives for corporations amid global uncertainty and a decrease in deposits due to rapid fiscal execution by local governments.
According to the Bank of Korea's report on 'March 2025 currency and liquidity' released on the 15th, the M2 (broad currency, average) for this March was recorded at 4,227.8 trillion won, a decrease of 3.8 trillion won (0.1%) compared to the previous month. This marks the end of the upward trend that had continued for 22 months since May 2023. The year-on-year growth rate fell from 7.3% to 6.1%.
M2 is a broad measure of the money supply that includes cash and demand deposits, as well as savings deposits that allow for instant withdrawals (narrow currency, M1), Money Market Funds (MMF), time deposits and installment savings with maturities of less than two years, revenue securities, and repurchase agreements (RPs), and generally refers to the amount of currency circulated in the market.
By financial product, revenue securities (+8.6 trillion won) increased, centered around short-term bonds that provide relatively high yields compared to deposit rates, while demand deposits (+5.5 trillion won) increased due to funds deposited by corporations for managing financial ratios at the end of the quarter.
Savings deposits with instant withdrawals (-7.2 trillion won) decreased due to fiscal execution by local governments. Other monetary products (-5.7 trillion won) saw a decline mainly due to foreign currency deposits for overseas investments and payment of import costs, while financial bonds (-4.8 trillion won) decreased due to weakened financing incentives for banks amid a slowdown in loan growth.
By economic entity, households and non-profit organizations increased by 9 trillion won, primarily in time deposits and demand deposits. In contrast, corporations decreased by 8.9 trillion won, mainly in other monetary products and MMFs, while other financial institutions decreased by 6.3 trillion won, focusing on financial bonds and time deposits. Other sectors also saw a reduction of 100 billion won.
The average of narrow currency (M1) decreased by 2.5 trillion won (0.2%) from the previous month to 1,279.6 trillion won. The year-on-year growth rate shrank from 4.8% to 3.4%. Financial institution liquidity reached 5,770.8 trillion won, while broad liquidity recorded 7,236 trillion won, decreasing by 0.2% and 0.3%, respectively, compared to the previous month.