Short-term funds hit record high in 2015

Short-term funds hit record high in 2015

Korea’s short-term floating funds soared to a new all-time high in 2015, data showed Wednesday, as low interest rates and growing economic uncertainties left investors in a dither.

Short-term floating money reached a record 931.3 trillion won ($764 billion) as of the end of last year, up 17.2 percent from a year earlier, according to the data compiled by the Bank of Korea and the Korea Financial Investment Association.

Short-term floating funds refer to money moving in and out of investments in search of higher profits. They include cash, savings deposits with a maturity of less than six months, money market funds and repurchase agreement balances.

Last year saw the largest rate of increase since 2009 when idle money spiked 19.8 percent on-year in the aftermath of the global financial crisis.

Such money has also been on the rise over the past several years, growing 7 percent in 2013 and 11.5 percent in 2014.

The surge is attributable to a fall in interest rates, which dragged down overall deposit rates at banks, causing customers to search for high yield-generating investment tools.

In June of last year, the central bank cut the benchmark interest rate to a record low of 1.5 percent and has frozen the level until this month amid weak recovery and unfavorable external conditions.

“Uncertainties looming over the market amid the protracted economic slowdown have also prevented investors from making longer-term investments,” said Ryoo Yong-seok, a researcher at Hyundai Securities.

“The global financial market will be volatile further for a while before central banks assure investors with reliable monetary policy,” he added.

As more tell-tale evidence that money fails to circulate in the economy, the so-called money multiplier logged the lowest level in nearly two decades in December 2015.

The money multiplier, which shows the ratio of commercial bank money to central bank money, stood at 17.5 times in December last year after reaching a peak of 32.7 times in October 1996. “There have been concerns that South Korea would fall into a liquidity trap,” said Jeong Won-il, an analyst at Yuanta Securities. “It is required to closely monitor how indicators in the real economy change in accordance with the loosening monetary policy.”

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