BOK floods market with liquidity amid political turmoil

The Bank of Korea (BOK) has significantly increased its liquidity injections into the financial market to stabilise conditions following the recent political turmoil in South Korea.

Last week, the central bank conducted repurchase operations worth 14.1 trillion won ($9.8 billion), a substantial increase compared to the 18.5 trillion won injected throughout November and the mere 1.5 trillion won in October.

South Korean authorities have pledged to take all necessary measures to maintain market stability after President Yoon Suk Yeol declared martial law on December 3rd. Finance Minister Choi Sang-mok reiterated the government’s commitment to stabilising the foreign exchange market through smoothing operations.

The won has depreciated by more than two per cent since the declaration of martial law, underperforming other Asian currencies. It is currently hovering near its weakest level since 2009.

The BOK’s aggressive liquidity measures have provided some relief to the market, with South Korean bond futures rising following the central bank’s actions. However, the overall market sentiment remains cautious, with bond futures still trading lower compared to pre-martial law levels.

The last time the BOK pledged unlimited liquidity was during the COVID-19 pandemic in 2020. The central bank conducted weekly repurchase agreement transactions from March to July, injecting a total of 19.4 trillion won into the market.

However, the current situation is not as severe as the pandemic, the BOK’s proactive measures aim to prevent any potential systemic risks and ensure the stability of the financial system.

Attribution: Bloomberg

Subediting: M. S. Salama