US Fed Pauses Liquidity Supply... What About BOK's Unlimited RP Purchases?

The Bank of Korea "To Announce Future Plans Before and After the Final RP Purchase... Financial Institutions' Funding Conditions Significantly Improved"

▲The Federal Reserve's (Fed) balance sheet shrinking compared to its peak level

[Asia Economy Reporter Eunbyeol Kim] As the U.S. Federal Reserve (Fed) appears to be adjusting the pace of liquidity supply it increased in response to the COVID-19 pandemic, attention is also turning to the 'Korean-style quantitative easing (QE).' The Bank of Korea (BOK) has supplied unlimited liquidity to financial institutions for over three months through full allotment repurchase agreement (RP) purchases, and with financial market instability somewhat alleviated, it is judged that, like the U.S., it may adjust the level of quantitative easing.

According to the BOK on the 21st, two unlimited RP purchases remain on the 21st and 28th. Since April, the BOK has started unlimited RP purchases, referred to as 'Korean-style QE.' Originally scheduled to end in June, three months later, the program was extended by one month considering the ongoing impact of COVID-19 and the concentration of maturities of the supply (91-day instruments) provided in April.

Through unlimited RP purchases, the BOK has supplied more than 18 trillion won in liquidity to the market so far. The first auction on April 2 saw bids exceeding 5 trillion won, and on April 7 and 15, more than 3 trillion won each was supplied through RP purchases. In May and June, as the financial market stabilized, weekly bid amounts remained around 500 billion won, but the first RP purchase in July attracted bids totaling 2.54 trillion won.

Kwon Taeyong, head of the BOK Market Operations Team, stated, "After observing the auction results, participating institutions, and their funding demands, we will announce the RP purchase operation plan around the last auction date." He explained that although the bid size slightly increased in the first RP purchase after the July extension, demand was not high considering the amount maturing.

Earlier, BOK Governor Lee Ju-yeol also said at the Monetary Policy Committee meeting on the 16th, after freezing the base interest rate, during a press conference, "Looking at the auction results so far under the extended RP purchase operation, the amounts fall significantly short of the maturing volume," indicating that "this means the financial companies' funding conditions have considerably improved." He added, "Whether to extend further will be decided soon after reviewing the funding demands of financial companies and considering several other factors."

Even if the BOK stops unlimited RP purchases, it means it will not conduct weekly regular RP purchases, but will be ready to conduct RP purchases as needed by the market. It may also consider reducing the frequency of RP purchases or raising the rate further.

Meanwhile, the U.S. Fed is showing signs of adjusting the pace of liquidity supply. As of the 15th, the Fed's total assets stood at about $6.95 trillion, down approximately $300 billion from the peak of about $7.17 trillion on June 10. After four consecutive weeks of decline, it has recently increased slightly, but compared to the peak, it has withdrawn nearly 360 trillion won.

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