Turkey’s cen­tral bank to in­tro­duce NDF con­tracts

The Gulf Today - Business - - REGION -

ANKARA: Turkey’s cen­tral bank (CB) will start of­fer­ing non-de­liv­er­able for­ward (NDF) con­tracts to help com­pa­nies hedge against for­eign ex­change risk with­out eat­ing into of­fi­cial re­serves, of­fi­cials said on Tues­day.

The move comes as the lira cur­rency has lost more than 15 per cent of its value against the dol­lar over the past 12 months, re­flect­ing in­vestor con­cerns about Turk­ish pol­i­tics and the crack­down that fol­lowed last year’s coup.

It is part of a broader push by the Turk­ish gov­ern­ment to help re­duce the forex risk for cor­po­ra­tions, Deputy Prime Min­is­ter Mehmet Sim­sek said on Twit­ter, adding that other ini­tia­tives in­clude a ban on small com­pa­nies from bor­row­ing in for­eign cur­rency and a strict limit on ex­porters’ bor­row­ings.

“We are plan­ning to launch non-de­liv­er­able for­eign ex­change for­ward trans­ac­tions. For­ward for­eign ex­change trans­ac­tions are one of the most com­monly used in­stru­ments in ex­change-rate risk man­age­ment,” the state-owned Anadolu news agency quoted Cen­tral Bank Deputy Gov­er­nor Erkan Kil­imci as say­ing.

By in­tro­duc­ing the con­tracts, Turkey is aim­ing to cre­ate a mar­ket with deeper vol­ume for lo­cal com­pa­nies, a se­nior econ­omy of­fi­cial told Reuters.

The net forex po­si­tion of Turk­ish com­pa­nies in the real sec­tor stood at -$212 bil­lion as of Au­gust, ac­cord­ing to cen­tral bank data. Last week, the cen­tral bank took an­other step to sup­port the cur­rency, by with­draw­ing some 5.3 bil­lion lira ($1.37 bil­lion) of lira liq­uid­ity from the mar­ket and pro­vid­ing some $1.4 bil­lion of dol­lar liq­uid­ity to banks un­der a change in re­serve re­quire­ments.

“A sig­nif­i­cant con­tri­bu­tion will be made to the cor­po­rate sec­tor’s ex­change-rate risk man­age­ment and the cen­tral bank re­serves will not be af­fected be­cause of the in­stru­ment’s na­ture. These trans­ac­tions will be con­ducted by auc­tions and via the banks that are mem­bers of the for­eign ex­change mar­ket,” Kil­imci added.

Kil­imci also said banks will be able to make trans­ac­tions with the cen­tral bank, de­creas­ing trans­ac­tion costs.

“Kil­imci’s com­ments im­ply that the bank will be hold­ing for­ward auc­tions for banks and the profit/loss at the set­tle­ment date will be ex­changed in the lo­cal cur­rency. In this re­spect, the bank’s of­fi­cial re­serves will not be af­fected,” said Gokce Ce­lik, chief econ­o­mist at QNB Fi­nans­bank.

Ce­lik said NDFS were ex­pected to pro­vide lim­ited ben­e­fit as they wouldn’t change sup­ply and de­mand dy­nam­ics in the forex mar­ket.

“One pos­i­tive im­pact could be pro­vid­ing some pre­dictabil­ity to cor­po­rates and hence al­le­vi­ate the volatil­ity in spot mar­ket by pre­vent­ing cor­po­rates’ rush to buy forex to cover cur­rency risks dur­ing pe­ri­ods of un­ease,” she said.

Reuters

Cus­tomers at a cur­rency ex­change in Is­tan­bul, Turkey.

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