Emergency Meeting on Macroeconomic and Financial Stability
Government Works to Implement Market Stabilization Measures
Deputy Prime Minister Kyungho CHOO presided over the Emergency Meeting on Macroeconomic and Financial Stability with BOK, FSC and FSS on November 28.
At this meeting, participants reviewed Korea’s current financial situation following the key interest rate hike the BOK delivered on November 24 and discussed the follow-up measures and future policy directions of the government’s market stabilization measures to inject over 50 trillion won to the bond market which were announced on October 23. They also exchanged their views on major challenges the country would possibly face at the end of this year and the beginning of the next year and how to address them.
The recent financial market has become less volatile with stock prices rising, interest rates and won-dollar exchange rates falling due to the possibility of adjusting the pace of monetary tightening at home and abroad. Against this backdrop, the impact of the BOK’s rate hike on the market has been limited as the rate raise was in line with market expectations. In particular, volatility in the Korean capital market has managed to be reduced in the wake of the market stabilization measures announced on October 23.
Nevertheless, some challenges are still weighing on the short-term money market, and funding conditions are uneven across sectors as capital flows into banking sector. Moreover, there are concerns that financial volatility would be heightened again as major countries’ price indices and interest rates decisions are scheduled to be announced by the end of the year, the real estate market would slow down, and capital supply and demand would possibly change due to year-end settlement.
At the meeting, the government and related institutions pledged to stay vigilant by closely monitoring the market trends and examining upcoming challenges and agreed on the need to stabilize the short-term money market as soon as possible. Therefore, the government will seek close coordination with related ministries and institutions to press ahead with the market stabilization measures to achieve three goals as follows: to stabilize the bond market supply and demand, improve liquidity of markets and businesses, and stabilize the real estate market.
Stabilize the bond market supply and demand
The government, public institutions, and banking sectors will continue to make concerted efforts to reduce the burdens of the bond market.
- The government will significantly reduce the issuance of government bonds in December to 3.8 trillion won from 9.5 trillion won
- Public institutions including the Korea Electric Power Corp. and the Korea Gas Corp. will seek cooperation with banking sectors to reduce the issuance of bonds, disperse the timing of bond issuance, and push for bank loan conversion
Improve liquidity of markets and businesses
The government will expand the purchasing capacity of policy support programs such as the bond market stabilization fund and the corporate bond and commercial paper (CP) purchasing programs.
- The government will make an additional capital call for the bond market stabilization fund and the BOK will provide liquidity to financial institutions that participate in the capital call
- Increase the pace of the corporate bond and commercial paper (CP) purchasing program run by KDB, IBK, and KODIT, the purchase of CPs issued by securities firms and the project-financing asset-backed commercial paper (PF-ABCP) program guaranteed by securities firms and construction firms
The government will refine financial regulations on capital management to support the financial sectors’ efforts to provide liquidity for market stabilization and the BOK will expand liquidity provision to help improve the capital market financing at the end of the year.
In addition, the government will request that large financial companies, institutional investors and corporations that have been in a better position to endure capital flow volatility would actively engage in the efforts for market stabilization.
Stabilize the real estate market
The government will weather instability in the bond and short-term money market by achieving the real estate market stabilization.
- Move up the implementation date of measures to help the real estate PF projects proceed as planned (starting from January 1, 2023)
- Push for additional deregulation in the real estate market within this year by carefully monitoring the market
- Request that financial institutions would provide capital to unproblematic PF and real estate projects in a bid to provide people with more houses
 The meeting was joined by the Bank of Korea (BOK) Governor, Chairman of the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS) Governor and the Secretary to the President for Economic Affairs from the Office of the President.
 The Korea Development Bank (KDB), the Industrial Bank of Korea (IBK) and the Korea Credit Guarantee Fund (KODIT)
 They include increasing the cap of a payment guarantee program by 5 trillion won, relaxing the criteria eligible for the payment program, and launching a loan guarantee program worth 5 trillion won for the real estate PF projects that have stocks of unsold houses.
Please refer to the attached pdf.