BOK tests quantitative easing through “unlimited” repo program until June

2020.03.26 12:30:51 | 2020.03.26 15:36:57

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South Korea’s central bank will supply “unlimited” short-term liquidity through repurchase-agreement operations, or repos, to back financial institutions joining state funds to stabilize securities market rattled by capital outflow from pandemic scare.

At the monetary policy meeting on Thursday, the Bank of Korea (BOK) announced its plan to purchase an unlimited amount of repos every week until June to improve cash flows in the financial and corporate sectors, the first kind in the Korean central bank history.

The central bank expects the aggressive repos purchase program would help the government make sure seamless implementation of the 100 trillion won ($81.3 billion) worth relief package program. Financial institutions have been asked to contribute to a 10 trillion won fund devoted to stock market and another 10 trillion won for the corporate debt market.

The central bank has also expanded the scope of non-banking repo dealers from the current five to 16 by adding 11 securities companies. It has also added eight public enterprises including Korea Electric Power Corp., Korea Gas Corp., Korea Land & Housing Corp., Korea Railroad Corp, Korea Rail Network Authority, Korea Water Resources Corp. and Korea SMEs and Startup Agency, broadening its security portfolio from sovereign and banking debt.

The repo rate is capped at 0.85 percent, 10 basis points higher than the key rate of 0.75 percent, the bank said.

The easing action follows its cut in interest rate by 50 basis points to a record low of 0.75 percent earlier this month through an emergency meeting.

The measure could be extended after July depending on market circumstances, the BOK said.

Bond prices rose sharply. The three-year government bond yield fell 9.3 basis points from the previous session to 1.038 percent Thursday morning, and the 10-year note down 12.3 basis points to 1.524 percent.

By Choi Mira

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