Korea’s money supply grew at the weakest pace in nearly seven years in March as payments of corporate tax drained money circulation, the central bank said Thursday.

The country’s M2, a narrow measure of its money supply, reached 1,677.5 trillion won ($1.55 billion) in March, marking a 4.3 percent increase from the figure posted a year earlier, according to the Bank of Korea.

The March reading was less than the 5 percent on-year gain seen in February and marked the slowest percent growth since 3.9 percent in May 2005, the central bank said.

The M2 covers currency in circulation and all types of deposits with a maturity of less than two years at lenders and non-banking financial institutions, excluding those at insurers, brokerage houses and credit card firms.

“Currency growth slowed as companies’ corporate tax payments for the March deadline drained currency and a credit card firm’s split from its bank parent led to a decline in the household debt tally,” said Kim Byoung-soo, an official at the BOK.

During March, Kookmin Bank spun off its credit card unit whose assets and credits get excluded from the M2 tally.

The on-year growth in the M2 has been slowing since July of last year when the money supply expanded 9.3 percent from the previous year, as banks became wary of extending corporate loans despite ample liquidity sparked by low interest rates.

The BOK said in a separate statement that the country’s M2 growth is estimated to have further slowed down in April to reach the upper range of 3 percent due to a decrease in trade surplus and foreign stock fund inflow.

The data came a day before the central bank holds its monthly rate-decision meeting. Analysts and market participants widely forecast the BOK would lift its key policy interest rate for May from the current 3 percent level due to hiking inflation concerns.

Meanwhile, liquidity provided by financial institutions expanded by 4.7 percent on-year to 2,152.7 trillion won March, slowing from a 5.2 percent gain in February, the central bank added.

The country’s liquidity aggregate, the broadest measure of the money supply, grew 7.6 percent in March after growing 7.2 percent in the previous month, the BOK said.

The liquidity aggregate covers currency in circulation, all types of deposits at financial institutions, and state and corporate bonds. 

(Yonhap News)