BOK to supply 6.5 tln won to financial system this week

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SEOUL, Dec. 15 (Yonhap) -- South Korea's central bank said Monday it will pump a
combined 6.5 trillion won (US$4.87 billion) in liquidity into the financial
system this week by buying longer-dated repurchase agreement deals.

According to the Bank of Korea (BOK), Monday's purchase of the 91-day deals will
supply 2.5 trillion won to financial firms. In turn, the firms would put the
money into a 10-trillion-won bond fund aimed at stabilizing the local debt
market. The fund is to be launched on Wednesday.
The central bank said it will also hold auctions to purchase 91-day repos on
Tuesday and another auction to buy 28-day deals on Friday. The auctions are
expected to generate 2 trillion won in additional liquidity each.
A repurchase agreement is a deal whereby one party sells the other a security at
a specified price with a commitment to buy the security back at a later date. It
is the central bank's main method of releasing liquidity into the market in a
credit crunch and siphoning off excess liquidity.
"Along with local banks, brokerage houses that were recently made eligible for
BOK's repo deals will be allowed to participate in the auctions," the central
bank said. "A potential liquidity supply will help funds to flow more smoothly in
the financial system," it added.
On Thursday, the BOK decided to allow an additional 12 local securities firms to
participate in its repurchase agreement operations to swiftly provide liquidity
to the financial system.
Despite steep rate cuts, market interest rates like yields on certificate of
deposits have not fallen as much as expected, deepening a credit squeeze in the
local debt market amid a lack of buyers for bank bonds.
On Thursday, the BOK cut the key interest rate by a record one percentage point
to an all-time low of 3 percent to prop up the slowing economy. It has trimmed
the policy rate by a combined 2.25 percentage points since early October.
sooyeon@yna.co.kr
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