USD/TRY stays in holding pattern after mild Turkish interest rate decision

The USD/TRY is little changed as traders react to the mild interest rate decision by the Turkish central bank. The pair is trading at 6.8465, which is within the range it has been in the past few weeks.

Turkish central bank interest rate decision

The Turkish central bank left interest rates unchanged as the country continued emerging from the coronavirus pandemic. The bank left the main key rate unchanged at 8.25% for the second monthin a row. That was in line with what all analysts polled by Bloomberg were expecting.

In a statement, the central bank governor said that the country was making gradual steps towards recovery. He attributed this to the strong monetary policy by the bank and fiscal policy by the Erdogan administration. He said that he expected that the vital tourism industry will recover as the country eases its travel restrictions. The statement said:

“Monetary stance will be determined by considering the indicators of the underlying inflation trend to ensure the continuation of the disinflation process. The Central Bank will continue to use all available instruments in pursuit of the price stability and financial stability objectives.”

The interest rate decision came at a time when the country has made progress in containing the coronavirus. According to Worldometer, the country has confirmed more than 222,000 cases and more than 5,000 deaths. However, the number of active cases has dropped dramatically while the average number of new infections has remained reasonably low.

Upbeat Turkish economic data  

Economic numbers too have been upbeat. Early this month, data from Markit showed that manufacturing PMI jumped to 53.90 in June from the previous 40.7. Another data showed that exports in June surged to $12.3 billion from the previous $9.4 billion. Similarly, inflation jumped from 11.39% to 12.62% while producer price index rose to 6.17%.

These numbers, coupled with the new development on a coronavirus vaccine has many believing that the Turkish economy will recover. Subsequently, some analysts believe that the Turkish central bank will increase rates after making nine cuts this year. In a statement, Yarkin Cebeci told Bloomberg that:

“With recovering domestic demand and increasing price pressures, the next move will be a hike. We have the first hike in the first half of 2021, but a sharper-than expected demand recovery could lead to heightened risks to price and financial stability, encouraging the central bank to act earlier.”

USD/TRY technical outlook

The daily chart shows that the USD/TRY pair has been relatively stagnant in the past few days. The price is trading at 6.8491, which is along the 50-day and 25-day exponential moving averages. The historical volatility index has moved to the lowest levels this year. Therefore, now that the central bank decision has not moved the USD/TRY pair, there is a possibility that it will continue trading in this range in the near term.