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Economy

South Korea central bank to infuse cash via 'unlimited' repos for first time

SEOUL (REUTERS) – South Korea’s central bank said on Thursday (March 26) it will temporarily offer an unlimited amount of money for three months through repo operations, an unprecedented move to funnel cash to money markets hammered by the coronavirus pandemic.

Repo auctions will be held every week, where a wider range of financial institutions will be able to borrow funds at the repo rate of no higher than 0.85 per cent, the BOK said in a statement.

The BOK also said it would accept a wider range of collateral including notes issued by state-run companies in the repo auctions – where central banks lend money to commercial banks and brokerages who can deposit government debt as collateral.

Thursday’s news follows similar policy moves by central banks around the world as policymakers race to bolster stimulus to tackle the economic and financial impact of the coronavirus.

On Monday, the US Federal Reserve pledged to back purchases of corporate bonds and buy unlimited amounts of Treasury bonds for the first time to ensure credit flows to corporations and local governments.

The BOK too is entering unchartered territory by pledging to offer an ‘unlimited demand’ for liquidity from domestic markets, after slashing interest rates by 50 basis points to 0.75 per cent on March 16 in its largest policy easing since the global financial crisis.

It is also working in tandem with the government, after President Moon Jae-in on Tuesday doubled a planned economic rescue package to 100 trillion won (S$118 billion) to save companies hit by the coronavirus and put a floor under crashing stocks and bond markets.

“Through this (repo operations), we will be supplying enough money to the government’s 100 trillion won rescue package programmes,” the BOK said.

The cost of raising US dollars by swapping the South Korean won surged to the highest since the global financial crisis earlier this month while the spread between corporate bonds and treasury debt has been widening, in a sign of tightening money market conditions.

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Categories
Economy

Bank of Japan sees deeper economic pain, even after emergency easing

TOKYO (REUTERS) – The coronavirus pandemic could plunge Japan into deep economic stagnation, the country’s central bankers warned at last week’s emergency monetary policy meeting with one seeing room for more stimulus, a summary of their discussion showed on Wednesday (March 25).

The Bank of Japan expanded monetary stimulus in an unscheduled policy meeting on March 16 to ease corporate funding strains and calm financial markets jolted by the health crisis.

A summary of opinions expressed at last week’s rate review showed the deep concern shared among the nine-member board over the huge blow the coronavirus outbreak could inflict on an economy, already reeling from last year’s sales tax hike.

“Japan’s economy may continue to stagnate even after overseas economies recover, as the impact of the virus could be enormous,” one board member was quoted as saying.

“I’m doubtful of the view Japan’s economy will stage a strong rebound once the virus is contained,” another opinion in the summary showed.

One board member said the BOJ can continue to respond flexibly to risks, through measures such as another emergency policy meeting or ramping up government bond purchases, as recession fears heighten, the summary showed.

The summary, typically released about a week after the BOJ’s policy meeting, does not disclose the identity of the board member who made the comments.

The pandemic has become a global economic crisis with travel restrictions, event cancellations and supply chain disruptions raising the chance Japan will slip into recession, keeping policymakers under pressure to deploy huge fiscal and monetary stimulus.

Confirmed coronavirus cases around the world exceeded 377,000 across 194 countries and territories as of early Tuesday, according to a Reuters tally, more than 16,500 of them fatal.

With the March monetary easing intended as a stop-gap move to address immediate strains in markets, the BOJ will focus more on how to address the economic fallout from the virus when it next meets for a rate review on April 27-28.

A senior ruling party lawmaker on Wednesday called on the government to compile a record stimulus that would be bigger than the 57-trillion-yen (S$745 billion) package deployed during the global financial crisis.

The BOJ also stands ready to expand stimulus again in April if the pandemic leads to cuts in jobs and capital expenditure big enough to derail prospects of an economic recovery, sources have told Reuters.

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