In order to be prepared for a potential reduction of the Flexible Credit Line that Colombia has with IMF in the year 2020, the Board of Directors of Banco de la República has decided to initiate a program of gradual international reserves accumulation.
Auctions of put options will take place in order to buy foreign reserves. These options can only be exercised when the exchange rate (TRM) is below the average of the previous 20 working days. This mechanism, therefore, ensures that the buying of reserves will not exert unwanted upward pressure on the exchange rate. This mechanism has been used before by the Central Bank to accumulate foreign reserves.
The auctions will take place on a monthly basis and the amount of put option to be sold will be stated in each announcement. Auction participants will bid for the price of the option in a uniform price auction. The exercise price of the put options will be the TRM valid on the day they are exercised. All entities that comply with Regulatory Circular DODM 143 will be entitled to participate.
The program does not pursue a specific target for the exchange rate and will not interfere with the monetary policy position. Banco de la República will use the necessary instruments to guarantee that the short-term interest rates in the Colombian economy are consistent with the Bank’s policy rate.
The Board has decided that as of today the first announcement for the auction will be made and that it will take place on the 1st of October for an amount of US$400 million. These options can be exercised between the 2nd and the 31st of October 2018.
Further details on the regulation of these options are in the Regulatory Circular DODM143 that can be consulted at the following link: http://www.banrep.gov.co/es/reglamentación-temas/2167. For additional information please write to email@example.com