USD/TRY rises as Turkish central bank leaves rates unchanged
- The USD/TRY pair rose slightly today as investors reacted to the CBRT interest rate decision.
- The bank left rates unchanged at 8.25% for the second consecutive month as analysts were expecting.
- This was the first decision after the Turkish lira dropped sharply early this month.
The USD/TRY rose slightly today, as investors reacted to the interest rate decision by the Turkish central bank. The pair is trading at 7.3370, which is slightly higher than the yesterday’s low of 7.2163.
Turkey leaves rates unchanged
The Turkish lira declined after the Turkish central bank (CBRT) delivered its rate decision. The bank left its one-week repo auction rate unchanged at 8.25% for the second consecutive month. It also left the overnight borrowing rate and overnight lending rate unchanged at 6.75% and 9.75%, respectively.
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The decision was in line with what most analysts polled by Bloomberg were expecting. Only four of the 22 economists expected the bank to hike rates today. At the same time, most of these analysts said that the central bank should raise rates for the first time this year.
In the statement, the banks central banks said that leaving rates unchanged was necessary in its goal to support the economy. The governor said:
“The Committee assesses that maintaining a sustained disinflation process is a key factor for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery. Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance.”
Economists preferred a rate hike
However, economists are disagreeing with this idea. For example, in a statement, Ziad Daoud, a senior economist at Bloomberg said that the bank should do what economics demands. He recommended for a rate hike because the rate of inflation was above the central bank’s target. The latest data from the country showed that consumer price inflation stood at 11.76% in July. Also, he cited the fact that Turkey has the lowest interest rates in the world.
Today’s decision was the first one since the Turkish lira dropped sharply due to market dysfunction. Between August 5 and August 10, the USD/TRY rose from a low of 6.90 to a high of 7.372.
At the same time, the bank has implemented some unconventional tools to cushion the lira. It is tweaking the cost of funding every day and modifying the amount of liquidity that is available to lenders. It has also opened repo auctions where lenders set their own interest rates through bids.
USD/TRY technical outlook
The USD/TRY is trading at 7.3370, which is below this year’s high 7.4097. The price is trading above the short, medium, and long-term moving averages. Also, the pair’s volatility as measured by the Average True Range (ATR) has increased sharply. The price is also in a consolidation phase, which means that the price is likely to continue rising as bulls aim for the next resistance at 7.500.