The Bank of Korea announced Wednesday that it would increase short-term liquidity in order to stabilize the foreign exchange markets.
Central bank proactive measures are a response to a series of dramatic events including the surprise declaration of martial law by President YoonSukYeol and its rapid reversal.
Bank of Korea held an urgent board meeting on Wednesday morning to evaluate the financial impacts of the chaos. The central bank issued a press release after the meeting pledging that it would inject money into the market via special loans, if necessary.
The BOK said, “As we announced with the government together, we will supply sufficient liquidity until financial markets and the foreign exchange market stabilize.”
Choi Sangmok, South Korea’s finance minister, reiterated central bank resolve and promised to coordinate actions to calm the market volatility.
South Korean financial regulator to deploy $7.07 billion
Yonhap News reported that the financial regulator of Korea is ready to put 10 trillion won into a stabilization fund for stock markets if needed.
Late Tuesday, President Yoon declared martial laws and mobilized the military in response to an escalating tension in Korea.
The National Assembly intervened within a few hours and overturned the declaration, forcing Yoon to withdraw the order on Wednesday morning. Since then, the deployed military units were withdrawn.
The market analysts are cautiously optimistic regarding the impact on financial returns of recent events.
Citi analysts wrote in a report for clients that they believed the impact of the economic and political uncertainty on financial markets and the economy could be mitigated quickly through proactive policies.
South Korean stock prices experienced sharp movements on Tuesday due to the political unrest.
The iShares MSCI South Korea ETF, a key index that tracks over 90 South Korean large- and medium-sized companies, plummeted 7% in US trading to a new 52-week-low. Later, it pared its losses and closed down at 1.6% after news spread of martial law being lifted.
The Bank of Korea surprised the world last week by lowering its benchmark rate of interest by 25 basis point. This was done to support the economy in the face of rising inflation and uncertainty around the globe.
Combining monetary easing with targeted liquidity measures shows the central bank is ready to protect South Korea’s markets against prolonged instability.
BOK interventions and government stabilization measures are aimed at restoring confidence in South Korea’s economy.
Market experts are convinced that immediate policy changes could reduce the impact on the longer term.
South Korea is a key player in global technology and semiconductor sectors. The stability of the financial markets in South Korea will be closely watched in the days to come.
The post Bank of Korea promises short-term liquidity boost in order to stabilize FX markets amid political turmoil South Korea may change as new developments unfold.
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