USD/TRY: Turkish lira sits at record low ahead of CBRT decision

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 Dec 15, 2021
  • The USD/TRY pair has surged to a record high.
  • Focus shifts to the upcoming CBRT interest rate decision.
  • The CBRT has adopted a dovish stance even as inflation rises.

The Turkish lira (USD/TRY) sell-off continued on Thursday as investors wait for the upcoming interest rate decision by the CBRT. The pair surged to an all-time high of 14.91, meaning that it has risen by almost 100% this year. The GBP/TRY and EUR/TRY have also surged to a record high.

CBRT decision preview

The Central Bank of the Republic of Turkey (CBRT) has become the most unorthodox bank in the world. The bank has slashed interest rates three times this year, becoming an outlier in the central banking world.

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It is an outlier simply because central banks tend to hike interest rates when inflation is rising. By so doing, the bank reduces the amount of money supply and helps to reduce inflation. 

The CBRT, on the other hand, has slashed interest rates dramatically because of pressure of the country’s president. It has cut in the past three straight months and analysts expect that the bank will sound a bit hawkish when it concludes its meeting on Thursday this week.

The expectations of a dovish CBRT has pushed the USD/TRY higher even after the central bank made two interventions recently. On Tuesday, the bank announced that it had intervened directly in the forex market.

Still, since Turkey is expected to go to an election in 2018, analysts expect that the bank will continue slashing rates. That’s because Erdogan believes that low-interest rates help to improve the economy by making it easy for people to borrow.

However, there is one positive thing that could push the CBRT to act rationally in the coming months. Recent data have shown that Erdogan’s approval rating is sinking even in his home area. While most people love his personality, they are struggling financially as they see their currency become worthless.

USD/TRY forecast

USD/TRY

The daily chart shows that the USD/TRY pair has been in a parabolic rally this year. This trend has made the Turkish lira one of the worst currencies to invest in lately. In my last note, I warned that the Turkish lira would crash to 15 this month. At the same time, the pair has moved above the 25-day and 50-day exponential moving averages (EMA). Oscillators have also risen to the overbought level.

Therefore, while the pair will likely keep rising in the near term, there is a likelihood that it will have a pullback after the CBRT decision on Thursday.

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