Government and Bank of Korea "Plan Additional Simple Purchase of Treasury Bonds"... Focus on Price Stability (Comprehensive)

Economic and Financial Authorities Gather for 'Macroeconomic Financial Meeting'
Discuss Price Stability and Smooth Debt Adjustment Plans for Small Business Owners

Deputy Chairman Do Gyu-sang of the Financial Services Commission (from the left), Lee Ju-yeol, Governor of the Bank of Korea, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, and Jung Eun-bo, Chairman of the Financial Supervisory Service, are attending the "Macroeconomic Financial Meeting" held at the Bankers' Hall in Jung-gu, Seoul on the morning of the 11th and posing for a commemorative photo. 2022.2.11

The heads of fiscal, monetary, and financial authorities gathered in one place to discuss measures for price stability and the smooth landing of small business debt. To stabilize the soaring government bond yields caused by global monetary tightening and political pressure to increase the supplementary budget, the Bank of Korea decided to proceed with additional simple purchases of government bonds, and the government plans to focus on stable management of core inflation to ensure price stability.

On the 11th, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, Bank of Korea Governor Lee Ju-yeol, Financial Supervisory Service Chairman Jung Eun-bo, and Financial Services Commission Vice Chairman Do Kyu-sang held an expanded macroeconomic and financial meeting at the Seoul Banking Hall to discuss domestic and international risk management measures. This was the first time in about four months since September 30 last year that the four economic heads gathered in one place. Financial Services Commission Chairman Ko Seung-beom was unable to attend the meeting due to a COVID-19 diagnosis, and Vice Chairman Do attended in his place.

Bank of Korea to Promote Additional Simple Purchases of Government Bonds

Deputy Prime Minister Hong and others agreed that, given the expanding domestic and international risk factors due to global inflation and major countries' monetary policy shifts, stable management of the macroeconomy and financial sector is very important.

First, the Bank of Korea decided to timely implement additional simple purchases of government bonds and adjust the monthly issuance volume of Monetary Stabilization Bonds (MSBs) to stabilize the rapidly rising government bond yields. Previously, the Bank of Korea also made a simple purchase of government bonds worth 2 trillion won on the 7th. Simple purchase of government bonds means buying government bonds circulating in the market, unlike direct purchase where the central bank buys government bonds directly issued by the government.

The Ministry of Economy and Finance decided to issue government bonds from the supplementary budget as evenly as possible. Also, considering the significant upward pressure on inflation in the first half of the year due to rising international oil prices and increases in processed food and dining-out prices, the fiscal, monetary, and financial policy sectors agreed to cooperate more closely. The Bank of Korea will focus on macro-level responses such as liquidity management, while the government will focus on micro-level stabilization measures such as adjusting fuel taxes and managing supply and demand of agricultural, livestock, and fishery products, striving for stable management of expected inflation and core inflation.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance (right), and Lee Ju-yeol, Governor of the Bank of Korea, are shaking hands at the "Macroeconomic Financial Meeting" held at the Bankers' Hall in Jung-gu, Seoul, on the morning of the 11th. 2022.2.11

'Household Economic Response Buffer Capital' System to be Operated in the Second Half of the Year

To manage household debt, the system and macroprudential management will be strengthened. First, the goal is to pilot the 'Household Economic Response Buffer Capital' system, which requires banks to accumulate additional capital up to 2.5%, in the second half of this year. To this end, discussions will begin on detailed system plans such as calculation methods for appropriate accumulation ratios and key utilization indicators. The expansion of the weekly total debt service ratio (DSR) application in July from 200 million won to 100 million won in total loan amount will also proceed without delay.

Measures for the smooth landing of small business and self-employed debt risks will also be prepared. The decision on whether to extend loan maturity and repayment deferral will be made next month, and customized support measures tailored to the circumstances of the self-employed will be developed. The extension of the Bank of Korea's financial intermediation support loans for the self-employed, which expire in March this year, will also be reviewed. Along with this, to enhance the financial sector's loss absorption capacity, the performance of loan loss provisions will be checked, and institutional improvements such as reviewing expected loss forecasting models will be conducted simultaneously.

Preparation for Worsening of the Ukraine Situation

The Ministry of Economy and Finance, the Bank of Korea, and others will prepare a contingency plan and form a task force (TF) in case the Ukraine situation worsens. Since a worsening Ukraine situation could combine with existing external risks such as normalization of major countries' monetary policies and affect the overall foreign exchange and external sectors, proactive preparation is planned.

The decision on the normalization of foreign currency liquidity coverage ratio (LCR), forward exchange position, and other foreign exchange soundness systems scheduled to end in March will be made promptly. Through monitoring three indicators for the non-bank sector (foreign currency funding and needs, foreign currency asset-liability gap, foreign currency funding-operation maturity), stress tests, and others, the foreign exchange soundness of the non-bank sector and the foreign currency liquidity supply system in emergencies will also be preemptively checked.

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