The Bank of Korea (BOK) announced emergency measures on Wednesday to boost short-term liquidity and stabilize the foreign exchange (FX) market following South Korean President Yoon Suk Yeol’s surprise declaration of martial law and its subsequent reversal by the National Assembly.
In a statement released after an emergency board meeting, the central bank pledged to inject sufficient liquidity into the market through special loans and other interventions as necessary. “We will provide sufficient liquidity for a limited time until the financial and foreign exchange markets stabilize,” the BOK stated, echoing an earlier commitment from Finance Minister Choi Sang-mok.
Government and Regulatory Action
The financial regulator is prepared to deploy 10 trillion won ($7.07 billion) to a stock market stabilization fund, according to Yonhap News Agency. The announcement is part of broader efforts by South Korea’s government to ease market anxiety following the brief implementation of martial law.
Yoon declared martial law late Tuesday night, citing escalating political instability, and mobilized military units across key areas. The National Assembly, however, swiftly voted to overturn the order, forcing Yoon to rescind it early Wednesday morning. The deployed military units have since been withdrawn, Yoon confirmed.
Market Reactions
South Korean stocks experienced significant volatility in response to the political turmoil. On Tuesday, the iShares MSCI South Korea ETF (EWY), which tracks South Korean equities, fell as much as 7% during U.S. trading, marking a 52-week low before closing down 1.6%.
Last week’s surprise 25-basis-point interest rate cut by the BOK had already added to uncertainty in financial markets. Citi analysts, however, remain optimistic about a swift recovery. “In our view, the negative impact to the economy and financial market could be short-lived as uncertainties on [the] political and economic environment could be quickly mitigated on the back of proactive policy response,” they noted in a briefing.
Outlook for Stabilization
The BOK’s swift actions aim to calm investor concerns and prevent further market destabilization. By coordinating with government entities and making emergency funds available, the central bank seeks to restore confidence in South Korea’s economic resilience despite the ongoing political challenges.
