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.