The Bank of Korea Has One Unlimited RP Purchase Left
7.2 Trillion Won Auctioned to Financial Sector on the 23rd
Foreign Currency Loan Maturities from Currency Swap Funds Start This Week
No Additional Dollar Supply Expected for the Time Being
[Asia Economy Reporter Kim Eun-byeol] As the end date of the Bank of Korea's 'Korean-style Quantitative Easing (QE)' approaches in one week, attention is focused on the Bank of Korea's future measures. In April, when the financial market was volatile, the Bank of Korea decided to supply unlimited liquidity to the financial sector for three months. However, recently, there have been criticisms that liquidity is actually abundant in the market, reducing the need for additional supply. If a second wave of the novel coronavirus infection (COVID-19) does not occur, it is expected that this could mark the starting point for the Bank of Korea to reverse the accommodative monetary policies it has implemented so far.
On the 23rd, the Bank of Korea announced that 720 billion KRW was bid and fully allotted in the 91-day repurchase agreement (RP) purchase. The RP purchase rate was 0.55%. Going forward, the Bank of Korea has one last RP purchase scheduled for the 30th. A Bank of Korea official stated, "We will decide whether to extend the RP purchase after observing market conditions."
The Bank of Korea's RP purchases, known as the so-called 'Korean-style quantitative easing,' began at the end of March to early April when financial market instability peaked. As the market plunged sharply, margin calls for financial institutions increased, causing liquidity shortages. Therefore, the Bank of Korea decided to lend unlimited funds using bonds held by financial institutions as collateral. At that time, liquidity supply through RP purchases was planned to continue for three months.
The Bank of Korea also added 11 securities firms to the RP purchase target institutions. When announcing this, Deputy Governor Yoon Myeon-sik described it as "virtually quantitative easing." So far, nearly 15 trillion KRW in liquidity has been supplied to the market. Last month, there were two occasions when no bids were made for RP purchases, raising concerns that liquidity might be excessive in financial institutions.
Meanwhile, the 84-day foreign currency loans supplied by the Bank of Korea to financial institutions using the Korea-US currency swap funds are reaching maturity. Unless special circumstances arise, the Bank of Korea does not plan to conduct additional foreign currency loans using currency swap funds for the time being. Currently, concerns about dollar liquidity are not significant, and it is expected that financial institutions will not face a heavy burden repaying the 84-day foreign currency loan maturity, so there is no need to use currency swap funds. To date, the total amount supplied to the market using currency swap funds by the Bank of Korea is 19.872 billion USD (cumulative amount).
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