South Korean central bank takes measures to stabilize financial, foreign exchange markets amid tensions

By Tuba Ongun

The South Korean central bank on Wednesday announced a series of measures aimed at stabilizing the country's financial and foreign exchange markets, following the lifting of martial law, which had caused significant volatility.

At an emergency meeting, the Monetary Policy Board of the Bank of Korea (BoK) decided to keep all options open and actively pursue market stabilization measures until conditions stabilized completely.

Starting Wednesday, the BoK will begin conducting irregular repurchase (RP) transactions to inject short-term liquidity into the market, it said in a statement.

These measures will be expanded even further, with a wider range of eligible securities and institutions allowed to participate in RP transactions. This is expected to facilitate a smoother Korean won liquidity supply.

In a move aimed at enhancing bond market stability, the bank will also undertake outright purchases of treasury bonds and repurchase operations for Monetary Stabilization Bonds as necessary.

Additionally, the bank is preparing for swift interventions if required under the Bank of Korea Act, ensuring that it can respond quickly to any future challenges.

Foreign currency liquidity will also be made available through foreign currency RP transactions to help mitigate any rapid exchange rate fluctuations.

The bank has also increased the net debit cap and enhanced collateral arrangements with financial institutions to ensure smooth payment and settlement operations.

Despite these interventions, the bank remains confident in the solid fundamentals of the Korean economy and its robust external financial position and expects market sentiment to stabilize over time. Nevertheless, the board emphasized that it would continue to closely monitor financial and foreign exchange market developments and take additional steps as needed.