USD/TRY forecast: CBRT interest rate decision preview

The USD/TRY price soared to an all-time high as investors braced for another interest rate cut by the Central Bank of the Republic of Turkey (CBRT). The pair is trading at 9.2438, which is about 34% above the lowest level this year.

CBRT decision preview

The Turkish central bank will conclude its two-day meeting on Thursday. Economists expect that the bank will cut interest rates for the second consecutive month. Precisely, they expect that the one-week repo rate will fall by 50 basis points to 17.50%. 

At the same time, the overnight borrowing and lending rates are expected to fall to 16.0% and 19%, respectively. 

Still, there is a likelihood that the CBRT will implement a bigger rate cut than expected even as the country’s inflation keeps rising. In monetary policy, central banks tend to push interest rates higher when inflation rises. 

In the previous meeting, the bank surprised the market when it slashed interest rates. Shortly afterwards, the USD/TRY price surged after the country’s president, Erdogan, announced that he had laid off three members of the committee. Media reports said that the three members had opposed the rate cuts.

The options market shows that the Turkish lira will drop to about 9.50 against the US dollar. The currency has fallen in the past nine straight years. 

Recent data showed that Turkey’s inflation has soared. Two weeks ago, data by the country’s statistics agency showed that the headline inflation rose at the fastest pace in two years. Precisely, the CPI rose by 19.58% in September from 19.25% in August. This situation will likely continue to worsen in the near term as prices of key commodities rise.

USD/TRY technical analysis

The daily chart shows that the USD/TRY pair has been in a sharp bullish trend in the past few months. This trend has pushed the Turkish lira to an all-time low. 

As a result, the pair is slightly above the important resistance level at 8.8240, which was the previous all-time high. The bullish trend is also being supported by the 25-day and 50-day moving averages. 

The pair will likely keep rising as bulls target the next key resistance level at 9.50. However, since a rate cut has already been priced in, there is also a possibility that it will drop to about 9.00.