Central bank injects funds into financial market through Repos to ease liquidity crunch

02, Apr. 2020

Photo by Anton Strogonoff on Unsplash
Photo by Anton Strogonoff on Unsplash

SEOUL, AJU - The Bank of Korea released 5.2 trillion ($4.2 billion) won in repurchase agreements aimed at easing a financial market crunch caused by a new coronavirus epidemic after the central bank promised to inject an unlimited amount of liquidity into the capital market.

The yield on the 91-day repurchase agreements (Repos) was set at 0.78 percent, up 3 basis points from the base rate of 0.75 percent. The Bank of Korea has promised to purchase entire amounts requested by banks and securities companies form three months.

Repo is a form of short-term borrowing, mainly in government securities. A dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price. Repos are typically used to raise short-term capital. They are also a common tool of central bank open market operations.

The central bank will conduct repo operations every Tuesday. The government has promised to create a bond market stabilization fund and expand the purchase of corporate bonds to help ease a liquidity crunch.