Korea central bank rolls out 'QE-light' to ease virus pain

By Cynthia Kim

SEOUL (Reuters) - The Bank of Korea is joining its peers in advanced nations to launch its own version of quantitative easing, buying an unlimited amount of bonds for three months in efforts to calm money markets hammered by the coronavirus pandemic.

The central bank said on Thursday that repo auctions will be held every week through the end of June, where more financial institutions will be able to borrow unlimited amounts of funds at the repo rate of no higher than 0.85%.

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.

The move to offer unlimited cash, if even temporarily, is unprecedented in the central bank's 70-year history, as it uses unconventional firepower to stimulate Asia's fourth-largest economy battling the region's biggest coronavirus outbreak outside China.

"We're supplying (money) to meet whatever the market demands, so it wouldn't be wrong to say we began quantitative easing," senior deputy governor Yoon Myun-shik told a news conference held over YouTube.

"It's different from QE by other advanced nations."

The June contract on 3-year treasury bond futures immediately soared with the announcement, up 0.24% to 111.39 points as of 0257 GMT.

Thursday's move 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 U.S. 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 meet 'unlimited demand' for liquidity after slashing interest rates <KROCRT=ECI> by 50 basis points to 0.75% 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 (68.73 billion pounds) 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 U.S. dollars by swapping the South Korean won <KRW=> 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.

South Korea has reported 9,241 coronavirus infections and 131 deaths.

(Additional reporting by Joori Roh; Editing by Jacqueline Wong)