USD/TRY: Turkish lira rally gains momentum after CBRT rate hike

USD/TRY: Turkish lira rally gains momentum after CBRT rate hike
Written by:
Crispus Nyaga
19th November, 13:04
  • The USD/TRY declined sharply after the Turkish Central Bank delivered its interest rate decision.
  • The bank, under a new governor, decided to hike interest rates for the first time in 3 months.
  • It hiked the overnight repo rate to 15% and the overnight borrowing rate to 13.50%.

The Turkish lira spiked against major currencies after the country’s central bank hiked interest rates for the first time in three months. The USD/TRY price dropped by as much as 2% while the GBP/TRY and EUR/TRY dropped by 2.2% and 2.5%, respectively.

Turkish lira performance against USD, GBP, and EUR

Turkish central bank hikes interest rates

The Turkish central bank delivered its interest rate today, meeting analysts’ forecasts. For the first time in three months, the bank decided to increase the one-week repo rate from 10.25% to 15%, the biggest increase in years.

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It also increased its overnight borrowing rate from 8.75% to 13.50% and the lending rate from 11.75% to 16.50%. This was the first monetary policy by Naci Agbal, the new CBRT governor. In the statement, the bank said:

“The Committee has decided to implement a transparent and strong monetary tightening in order to eliminate risks to the inflation outlook, contain inflation expectations and restore the disinflation process.”

Difficult time for Turkish economy

The CBRT interest rate decision comes at a difficult time for the Turkish economy. Backroom policies by the former central bank governor failed to stem the lira weakness. Indeed, early this month, the currency reached its lowest level against most currencies. At the same time, the country is facing sanctions from the United States for buying arms from Russia while the number of Covid cases has been rising.

Most importantly, Turkey has an annual inflation rate of 12%, making it among the worst-performing in the emerging markets. For example, South Africa’s inflation fell to 3% in October while Mexico’s annual rate is at 4.8%. The country is also facing high unemployment rate, with the official rate at 13%.

Worse, in recent days, the number of Turkey’s Covid cases has been rising. Yesterday, officials confirmed more than 4,215 new cases, the highest daily increase since April.

The USD/TRY is also falling as risk-on investorsmove to risky currencies because of a Covid vaccine. Earlier today, AstraZeneca said that its vaccine was effective, especially among older populations. Other companies like Pfizer (NYSE: PFE) and Moderna (NASDAQ: MRNA) have made similar announcements.

USD/TRY technical analysis

USD/TRY
USD/TRY technical chart

The USD/TRY has been on a sharp descent since November 6, when it reached an all-time high of 8.5838. On the four-hour chart, it is at the lower side of the Bollinger bands, which is a bearish sign, as you can see in our free forex trading courses.

Similarly, the pair has managed to move below the black bearish flag while the Relative Strength Index is a few points above the oversold level of 30. Therefore, with the Turkish lira so cheap, and with the new governor raising rates, the path of least resistance will be lower. The next key support level to watch is 7.20, which is 4.87% below the current level.

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