The South Korean government is prepared to pour liquidity into its financial market in case a recent stock slump sparks a credit crunch, a ranking official said Wednesday.
South Korean stocks were recently jolted by external risks, such as concern of a U.S. economic meltdown, with the benchmark stock index KOSPI tumbling 4.5 percent on Tuesday alone.
On Tuesday, the U.S. Federal Reserve cut its benchmark interest rate by 0.75 percentage point to 3.5 percent, its first emergency reduction since 2001.
"We will actively seek to inject liquidity into the financial market in case signs of a credit crunch magnify," said Vice Finance Minister Kim Seok-dong in a press conference after meeting with central bank officials and financial regulators in Seoul.
Kim said that the government plans to provide cash to fund operators that face an exodus of investors following recent market volatility. It will also request the country's national pension fund and other government-run funds to buy stocks earlier than scheduled to help the market cope with the recent downswing.
"The national pension fund is expected to buy an additional 9 trillion won ($9.5 billion) this year following last year's 30 trillion won worth of stock investment, said Kim.
The meeting held earlier concurred that the Korean economy's fundamentals are "solid" and that the current conditions are mostly a result of external variables, according to the vice minister.
The South Korean economy, despite high oil prices and other external risks, is expected to grow at the upper 4 percent-range this year, mainly because of optimism about exports and domestic spending, the government forecasts.