Turkey resumes foreign exchange swaps to stabilize the exchange rate and liquidity

Golden Ten Data, March 31 – Following widespread sell-offs in emerging markets triggered by the Middle East war and a consequent decline in foreign exchange reserves, Turkey has resumed foreign exchange swap transactions with local banks for the first time in over a year. On Tuesday, the Central Bank of Turkey conducted three USD/TRY swap auctions totaling 10 billion USD, with maturities ranging from one week to one month. Previously, Turkey’s monetary authorities withdrew about 2 trillion lira (45 billion USD) in liquidity from the interbank market in March, aiming to maintain a tight monetary policy stance. On February 28, the United States and Israel went to war with Iran, prompting capital outflows from risk assets and causing almost all emerging market currencies to depreciate. In contrast, the lira showed relative resilience, falling only 1.2% since the outbreak of the war. However, tight lira liquidity has sparked dissatisfaction among banks, with some executives calling for the resumption of foreign exchange swap transactions to alleviate pressure.