Bank of Korea today announced a set of measures aiming to stabilize the markets after the events from December 3, 2024.
Korean financial and foreign exchange markets, which had become highly volatile after the declaration of martial law, have now become somewhat stabilized after the lifting of the declaration.
Given the underlying anxiety in financial and foreign exchange markets, the Monetary Policy Board held an emergency meeting. The Board decided to keep all options open and to actively take market stabilization measures until markets are fully stabilized.
The Bank of Korea will provide a sufficient amount of liquidity until financial and FX markets stabilize for a limited time.
Starting today (December 4), the Bank of Korea will begin to conduct irregular RP purchases to expand the provision of short-term liquidity.
The Bank of Korea will also expand the range of securities and institutions eligible for RP transactions in order to ensure a smooth supply of Korean won liquidity.
The Bank of Korea will implement RP purchases in an unlimited amount, if needed.
Regarding bond markets, the Bank will conduct outright purchases of Treasury bonds and repurchases of Monetary Stabilization Bonds in a sufficient amount.
Concerning loans in accordance with Articles 64 and 80 of the Bank of Korea Act, preparations will be made to ensure a swift response, if necessary, through a resolution from the Monetary Policy Board.
Foreign currency liquidity will be provided through foreign currency RP transactions, and stabilization measures will be taken in case of any rapid exchange rate fluctuations.
Measures have been taken to allow prompt increases in the net debit cap and collateral arrangements at financial institutions in order to ensure smooth payment and settlement operations.
The following securities will be added to the current list of eligible securities for open market operations.
- KDB bonds, IBK bonds, KEXIM bonds, special bonds issued by nine public institutions, debentures issued by the National Agricultural Cooperative Federation and by Nonghyup Bank, debentures issued by the National Federation of Fisheries Cooperatives and by Suhyup Bank, and bank bonds under the Banking Act (Article 4 Paragraph 1).
However, these will be limited to securities eligible for RP transactions only (Article 4, Paragraph 2).
The Bank of Korea will take the following measures to manage its credit risk.
The newly eligible securities exclude self-issued bonds and bonds issued by related companies (Paragraph 3, Article 4).
The Bank will introduce necessary measures to prevent the credit risk of newly eligible securities from overly weighing on the Bank (Article 6.2).
These measures will be implemented temporarily from December 4, 2024, to February 28, 2025.
