USD/TRY: Turkish lira wavers after the first CBRT decision by Sahap

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Apr 15, 2021
  • The USD/TRY wavered slightly after the first rate decision by the CBRT.
  • The new governor left the interest rate unchanged as most analysts were expecting.
  • He also committed to use all tools to maintain stability.

The USD/TRY pair rose slightly after the first interest rate decision by Sahap Kavcioglu, the new CBRT governor. It rose to 8.08, which was slightly higher than the intraday low of 8.00.

USD/TRY
Turkish lira price action

CBRT rate decision

The Turkish Central Bank made its first rate decision under Sahap, the new governor. The bank decided to leave interest rates unchanged as most analysts were expecting. It left the one-week repo rate unchanged at 19.00% and the overnight borrowing and lending rates at 17.50% and 20.50%, respectively. 

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The decision came at an important time for Turkey. First, it came a month after President Recep Erdogan replaced the former central bank governor who had managed to stabilise the currency after it fell to a record low in 2020.

Second, the CBRT decision came at a time when data showed that the country’s inflation is rising. The headline consumer price index (CPI) rose by 16.2% in March after rising by 15.6% in the previous month. This trend was mostly because of the higher oil prices and weaker currency. 

Third, the decision came a few days after Erdogan pledged to keep borrowing rates low while at the same time taming inflation. In economics, this is usually a difficult thing since central banks tighten monetary policy in a bid to lower inflation. Today, when adjusted for inflation, Turkey has the second-highest interest rate after Egypt. In the statement, the governor said:

“The policy rate will continue to be determined at a level above inflation to maintain a strong disinflationary effect until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is reached.”

The USD/TRY is also reacting to the performance of the dollar. In the past few days, the dollar has declined against key currencies as the previous fears of inflation have eased. Data released by the country showed that the headline CPI rose by 2.6% while core CPI rose by 1.6%. Therefore, analysts believe that interest rates will likely remain intact for a few more years.

USD/TRY technical forecast

USD/TRY
USD/TRY technical chart

The USD/TRY has dropped by almost 5% from its highest level this year. On the four-hour chart, it has formed a head and shoulders pattern, which is usually a bullish sign. The Average Directional Movement Index (ADX) has dropped while the price is at the same level as the 15-day and 25-day moving averages. Therefore, the pair may resume the downward trend as traders target moves below 8.00.

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