USD/TRY: CBRT policy to help the Turkish lira – MUFG

In Turkey, President Erdogan criticized higher interest rates from the Central Bank of the Republic of Turkey (CBRT). Analysts at MUFG Banks expect the CBRT to maintain tighter policy thereby helping to maintain a stronger Turkish lira. 

Key Quotes:

“While the RUB and TRY have held up relatively well so far this year, downside risks have also increased in the near-term.”

“President Erdogan has created some unease amongst Turkish investors by resuming his criticism of higher rates ahead of this week’s CBRT meeting. However, we are not expecting the CBRT to shift to a looser policy stance any time soon with rates likely to remain on hold this week. The CBRT’s tighter policy stance is an important assumption behind our outlook for the TRY to remain at stronger levels”. 

“The return to more orthodox policy settings has been crucial in restoring confidence in Turkish assets and the TRY. After strong TRY gains at the end of last year, USD/TRY has recently tested and held support from its 200- day moving average at 7.3550. The TRY has lost upward momentum ahead of this week’s CBoT policy meeting, but it is unlikely to prove trigger for a deeper reversal lower”.

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