Short-term deposit growth in S. Korea slows on low rates

Short-term deposit growth in South Korea slowed sharply as the record-low policy rate dragged down return on deposits, central bank data showed on Monday.

Average balance of periodical and time deposits, which mature in less than two years, reached 880.56 trillion won (800.6 billion U.S. dollars) in 2014, up 0.8 percent from a year earlier, according to the Bank of Korea.

After peaking at 21.6 percent in 2010, the deposit growth rate kept falling to 5.9 percent in 2012 and 0.1 percent in 2013.

Low deposit rates resulted in slowing deposit growth. The deposit rates continued to decline from 5.67 percent in 2008 to 3. 23 percent in 2009 and 2.7 percent in 2013. The rates averaged 2. 42 percent in 2014 when the central bank cut the benchmark interest rate in August and October to a record low of 2 percent.

Amid the falling deposit rates, the consumer price inflation is estimated to be 2 percent this year, which means deposit rates adjusted for inflation would get minus, or negative.

The record-low policy rate resulted in fast growth of money supply. The country's M2, or broad money, increased 6.6 percent in 2014 from a year earlier, marking the fastest growth in four years.

The M2 covers M1, including currency in circulation, demand deposit and transferable savings deposit equivalent to cash, as well as money market fund, money trust, time deposit and financial products that mature in less than two years. Endi