USD/TRY: Markets need to see more clarity from CBRT, lira weakness to linger – TDS


Turkey's CBRT has hiked the repo rate by 200bps to 10.25%. The USD/TRY had an immediate kneejerk lower but half of the TRY gains were pared back in a matter of minutes. Whether the lira appreciates more in the coming days or not, depends on the consequences of the rate decision. In fact, economists at TD Securities now have more questions than answers.

Key quotes

“The CBRT tightened the repo rate (and likely the whole corridor) by 200bps to 10.25%. This is more than our +75bps forecast, but highlights that the direction of our call was correct against the almost unanimous consensus for a hold.”

“The performance of the Turkish lira is not referred to explicitly in the text. The CBRT only alludes to a weaker lira when it generically says that ‘as a result of fast economic recovery with strong credit momentum, and financial market developments, inflation followed a higher-than-envisaged path.’ We must conclude that 'financial markets' is an elegant way to refer to a disastrously weak lira.”

“But the problem with using unorthodox measures, as the CBRT is doing right now, is that not everything appears clear as it should. So, for instance, has the CBRT really shifted the whole corridor up by 200bps? We have seen no official communication of this so far, even though it is a logical and sensible thing to do.”

“But even if we clear this doubt, what will happen to CBRT funding in the coming days? If the CBRT decides to revert all funding activity to the repo rate, which now stands at 10.25% so below yesterday's WACF at 10.65%, the CBRT will have eased by 40bps, not tightened by 200bps. Will the CBRT decide instead to recalibrate its facilities so that the new WACF will end up at around 10.65% as is now? If so, today's decision would be tantamount to a hold.”

“Will the CBRT provide funding at the same conditions as yesterday, in which case the WACF will shoot up to 12.65% in just a few days? Well, in this case, we will be talking of real tightening.”

 

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.

Feed news

Are you new to trading or have been trading for a while and you feel stuck?

Try with us!
Become Premium!
   

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD rises above 1.2150 amid upbeat German data

EUR/USD has been rising above 1.2150 after the German ZEW Economic Sentiment gauge beat expectations with 84.4 points. Earlier, concerns about inflation boosted the dollar. 

EUR/USD News

GBP/USD trades off the highs amid risk-off mood, ahead of Bailey

GBP/USD is trading above 1.41 but off the fresh highs. The safe-haven dollar is gaining ground amid fears of inflation. UK PM Johnson's announcement of additional easing of restrictions boosted the pound on Monday. BOE Governor Andrew Bailey is set to speak later on.

GBP/USD News

XAU/USD remains confined in a range below $1,840 level

Gold is in the hands of the bulls but a correction is on the cards.  The monthly outlook is critical which makes the next few weeks testing for the gold market. 

Gold News

SHIB price skyrockets as Binance Lists Dogecoin rival Shiba Inu

“DOGE killer” Shiba Inu coin has reached a new all-time high as it rides on bullish momentum from recent crypto exchange listings. SHIB price has climbed by over 2,260% in the past week, as many investors missed out on the Dogecoin pump.

More Crypto News

Nasdaq (NDX QQQ) Technical view, key chart levels, Nasdaq tests trendline support

The Nasdaq is trading nicely from resistance to support. Friday's rally stalled at the convergence of the 9 and 21-day resistance. Monday sees the resistance work well and so the Nasdaq sells off and currently finds support at the lower trendline seen in the chart below.

Read more

Forex MAJORS

Cryptocurrencies

Signatures