(Seoul = Yonhap Infomax) Reporter Han Jong-hwa = The Bank of Korea decided to support 2.5 trillion won from the bond market stabilization fund investment institution (Chain Fund).
The BOK explained that it has decided to provide pre-emptive liquidity support to prevent the transfer of anxiety in the commercial paper (CP) market to other markets as the end of the year approaches.
The Bank of Korea announced on the 28th that it would provide support of up to 2.5 trillion won to financial institutions investing in debt funds by purchasing repurchase agreements (RP) to ease the liquidity crunch in the short-term financial market.
The BOK decided to provide financial support in time for the actual investment in the capital call announced by the authorities on the same day. The maximum 2.5 trillion won is 50% of the capital call amount of 5 trillion won. The amount of support from financial institutions participating in the loan fund is also less than 50% of the amount invested by individual institutions linked to the capital call announced on November 28th.
The Bank of Korea decided to decide whether to refinance every three months, taking into account the degree of improvement in market conditions. In terms of support, it was decided to use ‘real market interest rate + 10bp’ as the interest rate by purchasing RP.
The actual interest rate is published in the market on the day of the offer by reference to the 91 day delivery yield of MSBs.
The Bank of Korea said, “This support is to preemptively respond to the spread of funding concerns from financial institutions and companies before the end of the year and the possibility of a deepening short-term financial crunch, in order to promote the normal. operation of the transfer channel monetary policy, stabilizing the financial market, and stabilizing prices. It is a measure to complement monetary policy decisions,” he said.
Bank of Korea added, “We plan to immediately absorb the liquidity supplied through this support through open market operations such as the sale of RPs so as not to go against the current monetary policy stance.”
In a Q&A material distributed separately, the Bank of Korea said, “This measure is a micro-target policy for spreading funding anxiety and the possibility of short-term financial market crunch, etc., and since the liquidity supplied. absorbed through open market operations, its aim is to stabilize prices from a macro perspective. It is not inconsistent with the current monetary policy stance, which continues to raise interest rates,” he emphasized.
This measure is a supplementary measure to the monetary policy decision for price stability as it promotes the smooth operation of the monetary policy transmission channel, and is a necessary policy response for the central bank to pay attention to financial stability.
“We decided to provide liquidity support in order to prevent the spread of anxiety in the CP market to other financial markets before the end of the year, when uncertainty in the supply and demand for money is high,” he said. of the opinion that if the disease spreads and deepens, the cost of the policy to respond to it will be higher,” he explained.
Regarding the view that a response to financial market instability should be supported first with government funding, the BOK said, “In this case, the Bank of Korea’s credit risk is not really aligned, and market turbulence has mitigate it early through appropriate liquidity support.” “We were of the opinion that mitigation was a way of reducing policy costs,” he said.
jhhan@yna.co.kr
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