USD/TRY: CBRT tightening supports further downside extensions – TDS
|The Central Bank of the Republic of Turkey (CBRT) announced on Thursday that it raised its policy (one-week repo) rate by 475 basis points to 15% from 10.25%. According to Cristian Maggio, Head of Emerging Markets Strategy at TD Securities, this is all positive for the lira. It supports further downside extensions of USD/TRY which dived to new 2-month lows in the 7.50 area after the decision. However, the CBRT may have to deliver more in the coming months to keep TRY on an appreciation trajectory.
Key quotes
“The CBRT has today delivered tightening in line with broad expectations. The MPC under new Governor Naci Agbal has tightened the benchmark 1-week repo rate by 475bps to 15.00%. This was in line with the consensus expectations but slightly below our more aggressive call for 16%. This decision has had an immediate positive impact on the lira. The market was looking for signs that the CBRT is serious about tightening policy this time around. We believe the market has got most of the signals it was looking for - at least for now.”
“Is this enough to keep USD/TRY on a downward trajectory? Probably not as the effective tightening delivered today is ~20bps. It may take up to 2-3 days for the WACF to fully align with the repo. But at the end of the process, we expect to see a spread between the repo and the WACF of only a few basis points — if any. Certainly not, we think, remain in the hundreds of basis points. The value of restoring this mechanism is high in and by itself. Therefore, this decision certainly helps restore confidence.”
“We will need to see consistent and easily-understandable moves by the CBRT in the months ahead. This may require policymakers to lift the repo by another 200-500bps to bring inflation under control as quickly as possible.”
“USD/TRY may continue to edged lower for now , while front-end rates (that have exhibited all but unremarkable moves so far) may have to adjust higher.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.