South Korea's central bank said Tuesday that it will closely monitor the development of escalating tensions in Ukraine on concerns that the geopolitical risk could increase market volatility and negatively affect the domestic economy.

Russian President Vladimir Putin on Monday ordered the deployment of troops to two breakaway regions of eastern Ukraine after recognizing their independence, which raised the possibility of Russia invading Ukraine, dampening hopes for a diplomatic solution.

Policymakers and market watchers are paying keen attention to developments surrounding Ukraine as a military clash could have negative impact on South Korea's economy as it relies on imports of energy and other raw materials from the region.

Bank of Korea (BOK) Gov. Lee Ju-yeol called for vigilance against the economic fallout of the Ukraine tensions as he presided over a meeting with senior BOK officials.

"There is a need to closely monitor the related development for 24 hours and its impact on financial markets and economic conditions at home and abroad," Lee said.

The industry ministry held a separate meeting to assess the possible impact of the Ukraine situation on South Korea's exports and energy supplies.

The government said potential deterioration of the Ukraine crisis may have limited impacts on the South Korean economy in the short term, but it will closely monitor the situation.

Earlier in the day, President Moon Jae-in chaired a meeting of the National Security Council to discuss ways to protect South Korean nationals and minimize economic damage to the country's businesses based in Ukraine.

Heightening tensions in Ukraine sent the benchmark stock index sharply lower. The local currency also lost ground against the U.S. dollar.

The KOSPI lost 46.81 points or 1.71 percent to 2,696.99 as of 1:56 p.m. The Korean currency was trading at 1,195.35 won against the U.S. dollar, down 3.25 won from the previous session's close.

Tensions between Russia and the U.S. over Ukraine have driven up already high oil prices. Russia is one of the largest oil producers.

Dubai crude, South Korea's benchmark, soared to $93.05 per barrel on Feb. 15, up from $77.12 at the end of last year. South Korea depends mainly on imports for its energy needs.

Surging energy costs and the won's weakness are feared to further boost the country's import bills, exerting upward pressure on consumer inflation.

In January, the country's consumer prices rose 3.6 percent from a year ago, compared with a 3.7 percent on-year gain in December last year. Consumer inflation grew more than 3 percent for the fourth straight month. The BOK aims to keep annual inflation at 2 percent over the medium term. (Yonhap)