South Korea broadens business bond-buying program in the middle of credit crunch issue

South Korea expands corporate bond-buying program amid credit crunch concern

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South Korea Deputy Prime Minister and Minister of Economy and Finance Choo Kyung- ho speaks to his personnel participating in the G-20 Finance Ministers Meeting in Bali, Indonesia on July 16, 2022.

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South Korea’s federal government will broaden its business bond-buying program to name a few liquidity supply procedures in the middle of growing stress over a credit crunch in bond and short-term cash markets.

The federal government will double the ceiling of its business bond-buying center run by state-run banks to 16 trillion won ($11 billion), Minister of Economy and Finance Choo Kyung- ho stated on Sunday.

The procedure is focused on reducing volatility and issue of tight liquidity in business bond and short-term cash markets, Choo stated after a conference with leading monetary authorities, consisting of the reserve bank guv and regulative chief.

Commercial paper released by securities companies will be consisted of in the center’s purchase list, while an extra 3 trillion won of liquidity will be provided by the Korea Securities Finance Corp for securities companies experiencing liquidity lacks, he stated.

The Bank of Korea’s financial policy board will likewise consider its own procedures, such as reactivating an unique function automobile to acquire business bonds and business paper initially presented throughout the pandemic, Governor Rhee Chang- yong informed press reporters.

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But properties to macroeconomic financial policy are the same as this concern is short-term and specific to the business paper market, he stated.

There have actually been growing stress over indications of tension in South Korea’s short-term cash market, with the reserve bank having actually raised its policy rates of interest by 250 basis points given that August in 2015 from a record-low 0.5% to include inflation.

The main end-of-day yield on 91- day business paper increased to 4.25% on Friday from 1.55% at the start of the year, with the spread over the reserve bank’s policy rate broadening to 125 basis points from 48 basis points over the exact same duration.

To assistance ease the circumstance, the Financial Services Commission on Thursday stated it would postpone by 6 months a strategy to stabilize requirements for banks to hold more liquid possessions.

Also, South Korea’s bond market stabilization fund will resume purchasing business bonds and business paper worth as much as 1.6 trillion won from Monday.