South Korea central bank adjusts open market operation to boost money supply

SEOUL: South Korea's central bank has adjusted its open market operation mechanism to inject liquidity via repurchase agreements in a regular manner, citing reduced money supply from overseas.

Starting Jul 10, the Bank of Korea will inject liquidity into short-term money markets by buying bonds via 14-day repurchase agreements every Tuesday, in addition to the current bond selling of 7-day maturity conducted every Thursday, the central bank said on Thursday (Jun 26).

The BOK has been conducting open market operations with a focus on absorbing liquidity to prevent short-term interest rates from falling below the base rate amid large money supplies from overseas.

But, since the mid-2010s, there has been a trend of decreasing current account surpluses, reducing the need to absorb liquidity, while domestic money demand is also increasing.

The change will also help authorities be prepared for market stabilising measures in the case of any emergency, the BOK said.