BOK Deputy Governor: "Unlimited Liquidity Supply, Virtually Quantitative Easing" (Comprehensive)

"Market Liquidity Supply, Credit Risk Not Significant... Expanding RP Purchase Eligible Bonds Currently More Helpful"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Yoon Myeon-sik, Deputy Governor of the Bank of Korea, said on the 26th that "it is not wrong to view the Bank of Korea's unlimited liquidity supply as quantitative easing."

Deputy Governor Yoon made this remark at a press briefing held after the Monetary Policy Committee decided on the unlimited liquidity supply measure that day.

Quantitative easing refers to a method used by major advanced countries' central banks to supply money after lowering policy interest rates to zero (0) and having no room to lower rates further. It mainly involves purchasing government bonds or mortgage-backed securities (MBS) in specified amounts or periods to induce a sustained significant decline in long-term interest rates. Deputy Governor Yoon said, "In that sense, the quantitative easing of other advanced countries' central banks and the full allotment liquidity support system announced today by the Bank of Korea have somewhat different characteristics," but added, "If one says that supplying the full amount according to market demand is de facto quantitative easing, it cannot be said to be entirely incorrect, and it is not significantly wrong to view it that way."

Regarding the background of deciding on the full allotment method, he explained, "As the novel coronavirus infection (COVID-19) spreads worldwide, volatility in price variables is expanding not only in our country but also in global financial markets," and added, "This measure was introduced to resolve difficulties in fund procurement." When asked why repurchase agreements (RP) were chosen instead of government bonds, he explained, "The market currently under stress is not the government bond market but other bond markets."

Regarding the criticism that the Bank of Korea should directly purchase corporate bonds, he said, "Article 68 of the Bank of Korea Act includes government-guaranteed securities among the securities that can be traded on own account," but added, "However, whether a national consensus can be formed on the government guaranteeing corporate bonds is a separate matter." Parliamentary approval is required for the government to guarantee corporate bonds.

He explained that the credit risk from supplying market liquidity is not significant. He said, "Since it is limited to bonds that have received the highest 'Triple A' rating from domestic credit rating agencies and have government loss compensation clauses, I think credit risk has been minimized," and added, "There is no significant separate risk or cost."

He also emphasized, "It is true that liquidity in the market is tightening," and said, "Especially, you may be worried about the situation at the end of March, and we are also concerned about this and are strengthening monitoring."

This content was produced with the assistance of AI translation services.