The Bank of Korea (BOK) has intensified its cash injections into the financial market, pledging “unlimited liquidity” to stabilize the economy amidst growing political unrest. Last week, the central bank added 14.1 trillion won (approximately $9.8 billion) through repurchase operations, a significant increase from the 18.5 trillion won injected during November and a sharp rise from just 1.5 trillion won in October.
This move follows the imposition of martial law by President Yoon Suk Yeol on December 3, prompting South Korean financial authorities to assure the public that all necessary steps would be taken to maintain market stability. Finance Minister Choi Sang-mok emphasized on Wednesday that the government is actively managing the foreign-exchange market, employing smoothing operations to calm market volatility.
Since the announcement of martial law, the South Korean won has depreciated by more than 2%, underperforming other Asian currencies. The won is now trading near its weakest point since 2009. While South Korean bond futures increased following the BOK’s recent actions, they remain lower than before the political crisis.
This is not the first time the BOK has committed to providing unlimited liquidity. During the COVID-19 pandemic in 2020, the central bank launched a series of weekly repurchase agreement transactions, injecting a total of 19.4 trillion won into the market between March and July to mitigate economic uncertainty.
However, analysts argue that the current political turmoil is not as severe as the 2020 crisis. Ahn Yea-ha, an analyst at Kiwoom Securities Co., noted that the current situation does not pose a systemic risk to the country’s financial stability, as local financial institutions are not facing liquidity issues.
In recent operations, the BOK offered to purchase 12 trillion won of bonds through 14-day repurchase agreements on December 4, successfully bidding 10.8 trillion won. On December 6, the bank conducted another purchase operation, offering 4 trillion won, of which 3.25 trillion won was successfully bid.
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