USD/TRY prediction after the latest CBRT interest rate decision

The Turkish lira (USD/TRY) was little changed after the latest Turkish central bank (CBRT) interest rate decision. The pair is trading at 8.6150, which is about 2.20% below the highest point this year. The EUR/TRY and GBP/TRY were also in a consolidation mode.

CBRT interest rate decision

The CBRT was the second major Central Bank to conclude its monetary policy decision on Wednesday. Earlier on, the Reserve Bank of New Zealand made headlines when it decided to stop its large asset purchase program.

The CBRT did what most analysts were expecting. It left the one-week repo rate unchanged at 19.0%. It also left the overnight lending and borrowing rates unchanged at 17.50% and 20.50%, respectively.

In the statement, the bank’s governor, Sahap Kavcioglu said that the country’s economic activity accelerated in the second quarter as the government eased restrictions. It has alos accelerated its vaccine rollout, which has helped support the tourism and hospitality sectors. 

However, the governor lamented on top hindrances to the economic recovry. He noted that import prices and supply constraints had increased. That has led to higher inflation. Recent data showed that the headline consumer price index (CPI) rose by to a two-year high of 17.5% in June. The statement said:

“The CBRT will continue to use decisively all available instruments in pursuit of the primary objective of price stability. The policy rate will continue to be determined at a level above inflation to maintain a strong disinflationary effect.”

Analysts expect that the CBRT will slash interest rates in the final quarter of the year. The USD/TRY is also reacting to a surge of inflation in the United States. The headline CPI rose by 5.2% in June while core CPI rose by 4.2%. These were the highest figures in almost 30 years. 

USD/TRY technical analysis

The four-hour chart shows that the USD/TRY price has been in an overall bearish trend in the past few weeks. As a result, the pair has formed a descending channel that is shown in blue. This pattern appears like a bullish flag, which is usually a bullish sign. Further, the pair is slightly below the 25-day and 50-day moving averages (MA). Therefore, there is a possibility that the pair will break out higher in the next few weeks.