BOK to buy up to W5tr in state bonds to combat market uncertainties

(Yonhap)

South Korea’s central bank announced Tuesday that it plans to directly purchase state bonds worth some 5 trillion won ($4.2 billion) by the end of this year to combat uncertainties stemming from the resurgence of the coronavirus here.

“With the resurgence of the coronavirus leading to bigger market uncertainties, the government is expected to issue additional bonds,” the Bank of Korea said in a statement.

“This is a preemptive move to alleviate risks from a possible imbalance in terms of supply and demand of the bonds and abrupt volatilities in market rates,” it added.

The statement referred to the Moon Jae-in administration’s recent announcement to issue and sell more bonds to funnel the fourth extra budget worth more than 7 trillion won. The National Assembly is expected to pass the budget in a bid to minimize economic fallout from the pandemic. The National Assembly has so far approved three rounds of extra budgets worth some 60 trillion won combined.

In theory, when a central bank purchases bonds, money is flowing from the central bank to individual banks in the economy, increasing the money supply in circulation.

By Jung Min-kyung (mkjung@heraldcorp.com)