South Korea’s M2 Money Supply Growth Slows Down In September

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November 8, 2012 3:57 PM EST

South Korea's M2 Money Supply grew at a slower rate in September than in the previous month, indicating that more monetary easing policies are necessary to increase the amount of currency in circulation, which in turn can result in reviving the country’s economic growth.

According to the data release Thursday by the Bank of Korea (BoK), the country’s M2 Money Supply, which measures the change in the total quantity of domestic currency in circulation and deposited in banks, grew 8.9 percent in September, down from 9.2 percent in August.

This report comes after last month it was reported that South Korea’s current account surplus on a seasonally adjusted basis dropped in September as compared to that in the previous month, indicating that the weakening global demand was affecting the country’s economy.

According to the data released last week by the BoK, the current account surplus, which measures the difference in value between exported and imported goods, services and interest payments during the reported month, fell to $3.09 billion in September, down from $4.31 billion in August.

The central bank also reported that on an unadjusted basis, South Korea’s current account surplus in September was $6.07 billion up $2.5 billion in August. The goods account surplus rose to $5.64 billion in September, up from $2.51 billion in August with an increase in exports of electronic products and automobiles. Meanwhile, the services account returned to surplus $0.32 billion in September, up from $0.26 billion deficit reported in August.

Last month, the BoK announced its decision to cut the policy rate by 25 basis points to 2.75 percent. However, the market participants feel that additional stimulus measures are urgently needed to give a boost to the country's weakening economy.

The central bank decided to cut the policy rate as it believes that the global growth will continue to disappoint. The central bank noted that the growth in the U.S. has lost momentum and that the euro zone economy is contracting with weaker exports in the major economies in turn bringing a slower growth in the emerging Asian economy this year.

Market players sense that monetary policy should be loosened again sooner rather than later, though the central bank has shown a preference for moving slowly. With South Korea having an inflation rate of 2 percent in September, which is below the central bank's 3.0 percent target limit, there should be room for further policy loosening.

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