26 Mar 2020
Korea’s central bank is set to implement its own version of quantitative easing, purchasing an unlimited amount of bonds for three months.
The move is aimed at softening the blow of the COVID-19 pandemic.
On Thursday the central bank announced that repo auctions will take place each week until the end of June, with more financial institutions able to borrow unlimited amounts of money at the repo rate not above 0.85%.
Furthermore, the Bank of Korea said it would accept a broader collateral range, such as notes issued by state-run firms in the repo auctions, where central banks lend funds to commercial banks and brokerages who are able to deposit government debt as collateral, reports Reuters.
The initiative to offer unlimited funds has never been done before in the Bank of Korea’s 70-year history, as it attempts to stimulate the economy in light of the spread of coronavirus.
Senior deputy governor Yoon Myun-shik told a news conference: “We’re supplying (money) to meet whatever the market demands, so it wouldn’t be wrong to say we began quantitative easing.
“It’s different from QE by other advanced nations.”
When the announcement was made, the June contract on three-year treasury bond futures rose 0.24% to 111.39 points.
The action by the Bank of Korea on Thursday follows similar policy moves by other central banks across the globe as policymakers aim to strengthen stimulus to combat the economic effect of coronavirus.
Earlier this week, on Monday, the U.S. Federal Reserve announced it would back purchases of corporate bonds and purchase unlimited amounts of Treasury bonds for the first time to facilitate credit flows to organisations and local governments.
Moreover, Korea’s central bank has promised to meet ‘unlimited demand’ for liquidity after reducing interest rates by 50 basis points to 0.75% earlier this month, the bank’s biggest policy easing since the global financial crisis.
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