World Stock Watch

South Korea’s Central Bank Steps in to Stabilize Financial Markets Amid Political Turmoil

In a swift response to the surprise martial law declaration and its subsequent lift, the Bank of Korea (BOK) has announced measures to boost short-term liquidity and stabilize the foreign exchange market. This move comes after South Korean President Yoon Suk Yeol’s emergency declaration was overturned by the National Assembly, leading to a sudden reversal of the martial law order.

Emergency Board Meeting and Liquidity Injection

The BOK held an emergency board meeting on Wednesday, which resulted in a pledge to provide sufficient liquidity to the market until financial and foreign exchange markets stabilize. The central bank is also prepared to make special loans available to inject funds into the market if needed. This move is seen as a proactive response to mitigate the negative impact of the political turmoil on the economy and financial markets.

Stock Market Stabilization Fund

South Korea’s financial regulator has also announced its readiness to allocate 10 trillion won ($7.07 billion) to a stock market stabilization fund at any time. This fund is designed to provide a safety net for the markets during times of uncertainty.

Market Impact and Analyst Insights

The iShares MSCI South Korea ETF (EWY), which tracks over 90 large and mid-sized companies in South Korea, experienced significant fluctuations on Tuesday, tumbling as much as 7% before closing 1.6% lower. However, analysts at Citi believe that the negative impact on the economy and financial markets could be short-lived, citing the proactive policy response from the government and central bank.

Benchmark Interest Rate Cut

Last week, the BOK cut its benchmark interest rate by 25 basis points in a surprise move, which is seen as a positive step towards stabilizing the economy. The central bank’s latest measures are expected to provide further support to the markets.

Markets Open as Usual

Despite the political turmoil, South Korea’s stock markets opened as usual on Wednesday, with trading starting at 9 a.m. KST. The BOK’s swift response is expected to help calm market nerves and restore confidence in the economy.