Amid political chaos in South Korea, the Bank of Korea (BOK) announced on Wednesday that it would take measures to boost short-term liquidity and stabilize the foreign exchange (FX) market. This decision came after South Korean President Yoon Suk Yeol lifted an emergency martial law declaration earlier in the day, which had been imposed the previous night in response to rising tensions. The Bank of Korea’s move follows an emergency board meeting held around 9 a.m. local time, during which the central bank reaffirmed its commitment to providing necessary financial support to calm market jitters.
The central bank issued a statement saying it would ensure the provision of sufficient liquidity to the financial markets for a limited period, until stability is restored. The Bank also stated that it would deploy special loans to inject funds if necessary. This move aligns with earlier remarks made by South Korea’s Finance Minister, Choi Sang-mok, who emphasized the government’s readiness to provide ample liquidity to the market.
In addition, South Korea’s financial regulator revealed that it is ready to allocate up to 10 trillion won ($7.07 billion) to a stock market stabilization fund if required. The country’s financial authorities have expressed confidence that these measures would provide enough support to stabilize the markets, which had been severely affected by political instability.
The political turmoil began on Tuesday evening when President Yoon declared martial law and deployed the military in response to escalating unrest. However, the National Assembly swiftly voted to overturn the emergency order, prompting Yoon to retract the martial law order early on Wednesday morning. Military units that had been deployed were also withdrawn. Despite the swift political resolution, the economic impact remained a concern.
Citi analysts stated that the negative economic and financial impact of the political unrest may be short-lived, as proactive government interventions could quickly restore market confidence. However, South Korean stocks saw considerable fluctuations on Tuesday. The iShares MSCI South Korea ETF (EWY), which tracks major South Korean companies, plunged by as much as 7% before closing 1.6% lower.
Earlier in the week, the Bank of Korea had already taken steps to support the economy by cutting its benchmark interest rate by 25 basis points, surprising markets. With South Korea’s stock markets resuming trading on Wednesday morning, the country’s financial authorities are closely monitoring the situation, prepared to implement further measures as necessary to stabilize the economy.
