Regulator pledges 50 trillion won to calm markets after martial law declaration

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Regulator pledges 50 trillion won to calm markets after martial law declaration

Published: 04 Dec. 2024, 09:44 Updated: 04 Dec. 2024, 18:13

PARK EUN-JEE
[email protected]

Audio report: written by reporters, read by AI

Financial Services Commission Chairman Kim Byoung-hwan, center, speaks during an emergency meeting on Wednesday following the declaration of martial law. [FINANCIAL SERVICES COMMISSION]

The country's financial regulator is prepared to deploy a combined 50 trillion won ($35.4 billion) in funds to stabilize the stock and bond markets amid anticipated market volatility following the declaration of martial law the previous day.

The move, announced by Financial Services Commission Chairman Kim Byoung-hwan, followed the government's vow to provide “unlimited liquidity,” if necessary, at a time when the main Kospi bourse and won have lost ground over the past weeks.

Out of the 50 trillion won, 10 trillion won is earmarked for the stock market, with another 40 trillion won allocated to the bond and money markets.

“We will have a 10 trillion won market stabilization fund ready for immediate release when needed,” he said during Wednesday's meeting.

“The government will ensure stability by maximizing the use of a 40 trillion won fund designed to support the bond market and facilitate the purchase of commercial papers,” he added.

The announcement was followed by financial authorities’ decision to provide unlimited liquidity in order to address the market jitters.

The decision was made during the Emergency Meeting on Macroeconomic and Financial Issues, which began at 7:00 a.m. Wednesday in central Seoul, attended by Kim, Finance Minister and Deputy Prime Minister Choi Sang-mok, Bank of Korea Gov. Rhee Chang-yong and Financial Supervisory Service Gov. Lee Bok-hyun.

The market operated as usual as the turmoil overnight, triggered by the declaration, has gradually subsided due to the quick lifting of the decree.

The central bank’s monetary policymaking committee agreed to expand the group of parties eligible for repurchase agreement trading during an emergency meeting.

To provide sufficient liquidity, the Bank of Korea allowed all financial institutions to sell their assets to the central bank, reversing its previous stance of limiting such transactions to certain banks and brokerages.

“The Monetary Policy Board will leave open all options and act on measures to stabilize the markets as risks linger in financial and foreign currency markets,” the Bank of Korea said in a statement after its Wednesday meeting.

Bank of Korea Deputy Gov. Park Jong-woo characterized the current market situation as less volatile than it was at the peak of the Covid-19 pandemic and the 2022 credit crunch sparked by the Legoland crisis.

“As the central bank has entered an easing cycle in running monetary policy, market volatility is less severe,” Park said.

In terms of bond markets, however, the degree of fluctuation is similar, according to Park.

The Financial Supervisory Service also initiated a 24-hour monitoring system on Wednesday with a plan to communicate with foreign banks to protect the economy’s fundamentals.

The regulator warned speculative traders against spreading false rumors in an attempt to boost or bring down certain stocks.

BY PARK EUN-JEE [[email protected]]