In an attempt to manage exchange rate risks in the real sector, the Central Bank of the Republic of Turkey (CBRT) has decided to launch Turkish lira-settled forward foreign exchange sale auctions, the bank said Saturday.
The CBRT is taking action against the recent rise in exchange rates. Despite the weekend holiday, the bank announced its decision to launch a new product, the tender for the sale of Turkish lira-conventional forward foreign exchange, for the purpose of managing exchange rate risks in the real sector.
"The maximum total amount of foreign exchange sale position is planned to be $3 billion until end-2017," the bank noted in a statement.
The auction calendar was given on the website of the CBRT and the calendar for 2018 will be announced later.
The move came after the U.S. dollar/Turkish lira exchange rate saw a sharp hike last month - around TL 3.87 ($1) - on Saturday.
According to Turkish daily Habertürk, CRBT Vice Governor Erkan Kilimci recently said the bank was working on this product, but he did not specify the date and amount.
The schedule for tenders was disclosed by the CBRT on Saturday and the first tender for a total of $350 million is going to be held today. The CRBT statement revealed that the amount of forward foreign exchange selling position is planned to be $3 billion at most by the end of 2017, adding that the schedule for tenders to be held in 2018 is going to be disclosed to the public separately.
Bankers indicated that the CBRT is going to provide a significant amount of foreign currency to the market through tenders to be held for a month and break the pressure on exchange rates. Pointing to the fact that the dollar has gained value on a global basis in the recent period, bankers predict that this move by the CBRT is going to create boon and relaxation in exchange rates. On the other hand, according to the statement issued by the CBRT, banks that are authorized to trade currency in foreign exchange markets can join the tenders which are going to be held for one-month, three-month and six-month periods. The schedule for the tender dates is going to be released in certain periods.
The tenders are going to be carried out by the traditional (multi-price) method. The statement said, "The transactions of the winners according to the multiple price method are carried out at their bid prices. The maximum bid amount that each bank can place is limited to 20 percent of the total bidding amount."
How do Turkish lira-conventional foreign currency transactions run?
What are the Turkish lira-conventional forward foreign exchange transactions that are aimed at protecting exchange rate risks in companies and how are they going to work?
Forward foreign exchange contracts are among the most widely used products in exchange rate risk management.
Accordingly, the difference between the forward exchange rates and the exchange rate at maturity date in transactions is going to be changed into Turkish liras. In this way, while the product contributes to the real sector exchange rate risk management, it will not affect the reserves of the CBRT by its nature. These transactions are going to be realized through the tendering of foreign exchange market member banks.
