USD/TRY forecast after the latest CBRT interest rate decision

on Aug 12, 2021
  • The USD/TRY price declined after the latest CBRT interest rate decision.
  • The CBRT left the interest rate unchanged at 19%.
  • The Turkish retail sales increased substantially in July.

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The USD/TRY price retreated on Thursday after the relatively hawkish Central Bank of Turkey (CBRT) interest rate decision. The pair fell to 8.5600, which was significantly lower than this week’s high of 8.6810.

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CBRT interest rate decision

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The CBRT concluded its two-day meeting and did what most analysts were expecting. The bank decided to leave its key interest rate unchanged at 19%. It also left the overnight borrowing and lending rate at 17.50% and 20.50%, respectively even as the country’s inflation rose at a faster level than expected.

In a statement, the Central Bank governor, Sahap Kavcioglu said that the economy was doing relatively well as the country recovered. He cited leading indicators, which pointed to a strong recovery. Some of the numbers he mentioned were the trends in the vaccination program and the strong domestic tourism. 

At the same time, the bank warned about the mild commercial loan growth and the sharp increase of import prices and supply constraints as key hindrances to the recovery. The statement added that:

“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 Turkish Central bank has left few options to the central bank at a time when the president has renewed calls for lower interest rates. As such, for a rate cut to happen, the governor will need to go against his previous word or wait for inflation to fall further.

Earlier on Thursday, the USD/TRY declined after the relatively strong Turkish retail sales numbers. The data showed that the headline sales rose by 14.4% month-on-month in June and by 17.4% on a year-on-year basis.

USD/TRY technical analysis

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USD/TRY technical analysis

The four-hour chart shows that the USD/TRY pair declined slightly after the CBRT interest rate decision. On the four-hour chart, the pair has formed a double-top pattern at around 8.6750. It has also moved below the 25-day and 50-day exponential moving averages (EMA). 

Therefore, the pair will likely continue falling as bears target the next key support at 8.500 level. On the flip side, a move above the key resistance at 8.6750 will invalidate this view.