"Supplied Liquidity Absorbed Through Open Market Operations"
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, along with heads of financial authorities, are taking a commemorative photo on the 28th at the Bankers' Hall in Jung-gu, Seoul, before the Emergency Macroeconomic and Financial Meeting. From the left, Choi Sang-mok, Senior Secretary for Economic Affairs; Lee Chang-yong, Governor of the Bank of Korea; Deputy Prime Minister Choo; Kim Ju-hyun, Chairman of the Financial Services Commission; Lee Bok-hyun, Governor of the Financial Supervisory Service. Photo by Kim Hyun-min kimhyun81@
[Asia Economy Reporter Seo So-jung] The Bank of Korea is set to provide an additional liquidity injection of 2.5 trillion won amid ongoing short-term funding market instability caused by the Legoland incident. To improve liquidity tightening in short-term financial markets, the Bank plans to support liquidity through repurchase agreement (RP) purchases for financial institutions participating in the Bond Market Stabilization Fund.
On the 28th, the Bank of Korea announced that it will support liquidity up to 2.5 trillion won through RP purchases for financial institutions participating in the Bond Market Stabilization Fund. The support amount per participating financial institution will be limited to within 50% of each institution’s individual contribution. The decision on refinancing will be made every three months, considering the degree of market improvement.
The Bank explained, "This support is a preemptive measure to address the spread of funding concerns among financial institutions and companies ahead of the year-end and the potential deepening of short-term financial market tightening, thereby preventing the amplification of monetary policy transmission channels. To ensure consistency with the current monetary policy stance, the liquidity supplied through this support will be promptly absorbed through open market operations such as RP sales."
The Bank added, "Through this support, we expect that excessive liquidity tightening and anxiety in the financial sector, which has significant exposure to the interest rate-sensitive real estate sector, will be alleviated, minimizing unexpected negative impacts arising from the continuation of the monetary policy tightening stance."
Regarding concerns that the RP purchases for Bond Market Stabilization Fund participants might contradict the monetary policy tightening stance, the Bank clarified, "This measure is a micro-targeted policy addressing the spread of funding anxiety and potential tightening in short-term financial markets. Since the supplied liquidity will be absorbed through open market operations, it does not contradict the current monetary policy stance, which continues interest rate hikes for price stability from a macro perspective." It added, "This is a complementary measure to monetary policy decisions aimed at price stability, facilitating smooth monetary policy transmission, and a necessary policy response for the central bank, which must also pay attention to financial stability."
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