Calls grow for BOK intervention amid COVID-19 crisis

Increasingly pressed to play a more active role in the coronavirus-hit financial market, South Korea’s central bank is considering exceptional measures to provide liquidity, such as purchasing corporate bonds and corporate bills.

The Bank of Korea is slated to hold its decision-making Monetary Policy Board meeting Thursday to review the necessity of base rate adjustments and other key monetary actions, officials said.

Despite the prolonged economic fallout from the COVID-19 pandemic and the continued need for easing actions, market experts generally suggested that the central bank would freeze the rate this time, maintaining a wait-and-see approach.

“We expect that (the BOK) will freeze the rate this time so that it may observe the impact of its ‘big rate cut’ and repo operations, which should practically be seen as a quantitative easing action,” Daishin Securities analyst Gong Dong-rak said.

Last month, the board summoned an emergency session and slashed the nation’s base rate by 50 basis points to an unprecedented 0.75 percent.

In a follow-up easing gesture last week, the BOK funneled some 5.25 trillion won ($4.2 billion) of liquidity to the financial market through repurchase agreements -- or repo operations -- essentially providing financial institutions with short-term loans.

“Uncertainties remain but the liquidity crunch is showing some signs of alleviation,” said Kim Sang-hoon of KB Securities.

“The BOK may prefer to hold off its major decisions at least until the economic indexes for the first quarter shape out.”

Some, however, questioned the effectiveness of the BOK’s policy road map, which is relatively passive compared with that of the US Federal Reserve.

Last month, the US central bank unveiled a Primary Market Corporate Credit Facility and a Secondary Market Corporate Credit Facility that would purchase eligible corporate bonds directly from issuers or in the secondary market.

It also was granted the power to lend an additional $4 trillion to businesses as the US Congress approved of an emergency fiscal funding bill to deal with COVID-19.

“Should market situations aggravate, the BOK could consider providing funds to a special purpose vehicle as an indirect way to purchase corporate bonds from financial companies,” said Jang Min, a senior researcher at the Korea Institute of Finance.

By Bae Hyun-jung (tellme@heraldcorp.com)