July 7, 2022

The Bank of Korea on Thursday announced that the country will be able to borrow up to US$60 billion from the U.S. Federal Reserve’s “repo facility”. The scheme has been designed to help countries secure overnight dollar funding by using their holdings of U.S. Treasury securities.

According to the central bank, the deal reached with the Federal Reserve will allow the Bank of Korea (BOK) to exchange its U.S. Treasury holdings for dollars. This will be done through the Foreign and International Monetary Authorities (FIMA) Repo Facility with an interest rate of 0.25 percent.

South Korea held $125.4 billion worth of U.S. Treasury securities as of end-October of which more than 90 percent are said to be owned by the BOK.

The central bank mentioned that the latest deal with the U.S Federal Reserve will help the country to secure a new source for dollar liquidity that can be utilized when necessary.

According to reports, the deal came days after the BOK mentioned that its $60 billion currency swap contract with the Federal Reserve will expire later this month as scheduled, while also mentioning that financial and economic situations at home and abroad remain stable.

The central bank also mentioned that the country by the end of this month will discontinue a special program to buy corporate bonds, inclusive of low-rated debts, as planned as the financial market has stabilized.

The Bank of Korea (BOK) and the state-run Korea Development Bank (KDB) in July last year in a move aimed at easing a corporate funding squeeze launched a 10 trillion-won (US$8.4 billion) program to purchase corporate bonds and commercial paper.

The central bank also mentioned that to brace for a possible increase in the financial market it will maintain readiness to resume the operation of the special purpose vehicle.

Lastly it added that its monetary policy board approved a move to extend the maturity of its loans to the program. The BOK earlier in January had lent 1.78 trillion won to the program with a one-year maturity.