Central Bank to start lira-settled FX forward sales transactions

ANKARA

The Central Bank has announced that it will start conducting Turkish Lira-settled foreign exchange forward-selling transactions.

The aim is “to ensure the sound functioning of the foreign exchange market, prevent possible volatilities in exchange rates and stabilize foreign exchange liquidity,” said the bank in a statement on March 20.

The bank’s decision came after the sharp fluctuation in the FX market and the stock exchange earlier this week, triggered by recent political developments.

The lira weakened to record low levels against the U.S. dollar and euro, while the benchmark BIST 100 index declined sharply on March 19.

Amid the turbulence in the markets, Finance Minister Mehmet Şimşek stepped in to assure investors.

“Everything necessary is being done for the healthy functioning of markets. The economic program we are implementing continues with determination,” Şimşek said in a social media post on March 19.

Both Goldman Sachs and JP Morgan have argued that the Central Bank can mitigate the risks of dollarization.

In their reports, the investment banks noted that the Central Bank’s gross reserves are at $170 billion.

Current FX reserve buffers are sufficient for the Central Bank to act with resolve, said JP Morgan analysts.

“We believe the Central Bank will provide sufficient supports for market functioning and liquidity in coming days,” they said.