The Central Bank of Turkey has announced that under the floating exchange rate regime, the level of exchange rate is determined by supply and demand conditions in the markets. However, the volatility in the exchange rate has been closely observed, and the Central Bank may directly intervene in the markets in the event of an excessive volatility that might occur in both directions.
In this context, the Central Bank directly intervened in the foreign exchange markets in July and December 2002, by selling foreign currency and by buying foreign currency, due to the excessive volatility in exchange rates.
There has recently been an excessive volatility in exchange rates, especially as of end April, due to the end of the Iraq War and investors’ tendency toward Turkish lira investment instruments as well as the upsurge in FX selling because of the need for Turkish lira liquidity, resulting from tax payments and lack of foreign exchange demand.
Favorable expectations created by inflation figures announced in early May and the successful borrowing of the Treasury over the amounts to be redeemed has contributed to the reduction in excess TL liquidity.
Hence, the Central Bank has directly intervened in the markets today by buying foreign currency in order to dampen excess volatility. As in all other interventions in both directions, this intervention should not be interpreted as a concern of the Central Bank over the actual level of exchange rates.
Moreover, the Central Bank has initiated to hold foreign exchange buying auctions due to the excess of foreign exchange supply. The purpose here is to strengthen the international reserve position in a way not contradicting with the floating exchange rate system and without disrupting the long-term trend and natural equilibrium of exchange rate. In this framework, the Central Bank will continue to conduct foreign exchange buying auctions within the principles stated in an announcement earlier this month. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
