Choo Kyung-ho, South Korea’s Deputy Prime Minister and Minister of Economy and Finance, speaks to his staff attending the G-20 Finance Ministers’ Meeting in Bali, Indonesia, July 16, 2022.
Sonny Tumbelaka | AFP | Getty Images
The South Korean government will expand its corporate bond-buying program among other liquidity-providing measures amid growing concerns about a credit crunch in the bond and short-term money markets.
The government will double the ceiling of its corporate bond-buying facility, which is operated by state-owned banks, to 16 trillion won ($11 billion), Economy and Finance Minister Choo Kyung-ho said Sunday.
The measure aims to ease volatility and worries about tight liquidity in corporate bond and short-term money markets, Choo said after meeting with senior finance officials including the central bank governor and regulator.
Commercial securities issued by securities firms will be included in the facility’s purchase list, while Korea Securities Finance Corp will provide additional liquidity of 3 trillion won for securities firms facing liquidity constraints, he said.
The Bank of Korea’s monetary policy body will also consider its own actions, such as reactivating a special purpose vehicle to purchase corporate bonds and commercial paper first introduced during the pandemic, Gov. Rhee Chang-yong told reporters.
But the assumptions for macroeconomic monetary policy remain unchanged as this issue is temporary and specific to the commercial paper market, he said.
There are growing concerns about signs of stress in South Korea’s short-term money market, as the central bank has raised interest rates by 250 basis points from a record low of 0.5% since August last year in a bid to curb inflation.
The official 91-day commercial paper yield rose to 4.25% on Friday from 1.55% at the start of the year, with the spread over the central bank’s interest rate widening to 125 basis points from 48 basis points over the same interval.
To defuse the situation, the Financial Services Commission said on Thursday it would delay by six months a plan to normalize requirements for banks to hold more liquid assets.
Also, South Korea’s Bond Market Stabilization Fund will resume buying up to 1.6 trillion won in corporate bonds and commercial paper from Monday.