SEOUL: The South Korean central bank says it will start to buy or sell securities with non-banking finance institutions in open markets, expanding the scope of entities subject to its key monetary policy instrument to control the money supply in the economy.
With the latest change in the Bank of Korea’s (BoK) open market operations, local asset-management firms, mutual savings banks and credit unions will now be eligible to engage in repurchase agreements (repos) for securities transactions and monetary stabilisation bonds auctions by the central bank.
Only around 37 financial institutions, including banks, securities firms and insurance companies, were able to take part in the BoK’s buying schemes until now.
The move, set to take effect in February, comes in the wake of the nationwide bank-run panic that spread last year over the rising delinquency rates of the nation’s leading mutual financial institution, Korean Federation of Community Credit Cooperatives or KFCC.
The decision was made during the central bank’s Monetary Policy Committee last Thursday.
The newly included participants will be announced in July, according to the central bank.
Open-market operations are some of the BoK’s main policy tools through which it sells securities, such as government bonds, to financial institutions to influence market liquidity and interest rate levels.
Repos are mostly used to raise short-term capital, and the BoK usually sells them to absorb liquidity from the market. — The Korea Herald/ANN
