Last week, the Central Bank of Turkey raise the one-week repo rate by 200bps to 10.25%. Analysts at MUFG Bank, point out that conventional policy hikes are encouraging but additional tightening may be necessary in order to curb Turkish’s lira weakness. They forecast USD/TRY will rise above 8.00 during the first quarter of next years.
“An excessively loose monetary policy amid high inflation, sizeable external financing requirements and decreasing FX reserves has led to significant lira depreciation over the summer. This prompted the CBoT to unexpectedly hike rates. Although the decision is a welcome step, more is needed.”
“Given a long history of growth-centric policy, and the potential for policy flexibility in shifting the true cost of funding (with the policy rate still below the weighted average cost of funding), markets will still need more convincing that last month’s hike marks a sustained change in policy. With this in mind, the details of policy implementation, such as outcomes like the marginal cost of funding, along with developments in dollarisation, reserves and the balance of payments, will be central to monitor.”
“The CBoT hike is encouraging, by itself, and signals that it may act earlier and more decisively against further FX weakness than previously thought.”
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.