South Korea Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks along with his staff attending the G-20 Finance Ministers Meeting in Bali, Indonesia on July 16, 2022.
Sonny Tumbelaka | AFP | Getty Images
South Korea’s government will expand its corporate bond-buying program amongst other liquidity supply measures amid growing worries a few credit crunch in bond and short-term money markets.
The federal government will double the ceiling of its corporate bond-buying facility run by state-run banks to 16 trillion won ($11 billion), Minister of Economy and Finance Choo Kyung-ho said on Sunday.
The measure is geared toward easing volatility and concern of tight liquidity in corporate bond and short-term money markets, Choo said after a gathering with top financial officials, including the central bank governor and regulatory chief.
Business paper issued by securities firms will probably be included in the ability’s purchase list, while an extra 3 trillion won of liquidity will probably be supplied by the Korea Securities Finance Corp for securities firms experiencing liquidity shortages, he said.
The Bank of Korea’s monetary policy board will even consider its own measures, resembling reactivating a special purpose vehicle to buy corporate bonds and industrial paper first introduced throughout the pandemic, Governor Rhee Chang-yong told reporters.
But premises to macroeconomic monetary policy are unchanged as this issue is temporary and particular to the industrial paper market, he said.
There have been growing worries about signs of stress in South Korea’s short-term money market, with the central bank having raised its policy rate of interest by 250 basis points since August last 12 months from a record-low 0.5% to contain inflation.
The official end-of-day yield on 91-day industrial paper rose to 4.25% on Friday from 1.55% firstly of the 12 months, with the spread over the central bank’s policy rate widening to 125 basis points from 48 basis points over the identical period.
To assist allay the situation, the Financial Services Commission on Thursday said it will delay by six months a plan to normalize requirements for banks to carry more liquid assets.
Also, South Korea’s bond market stabilization fund will resume buying corporate bonds and industrial paper value as much as 1.6 trillion won from Monday.
