The USD/TRY exchange rate held steady on Friday morning after the Central Bank of the Republic of Turkey (CBRT) slashed interest rates higher than previously expected. The pair was trading at 35.22, a few points below the all-time high of 35.30.
CBRT interest rate cut
The CBRT delivered its interest rate decision on Thursday and surprised investors by slashing them higher than expected.
The bank cut rates by 250 basis points from 50% to 47.50%. Analysts were expecting it to cut rates to 48.50% during this meeting. It was the first time in 22 months that the central bank has slashed interest rates/
The CBRT also slashed the overnight lending rate from 53% to 50%, and the borrowing rate from 47% to 44.50%.
These cuts came even as data showed that Turkey’s inflation rate remained elevated in November. The headline Consumer Price Index dropped to 47.09% in December, a smaller decline than the median estimate of 46.60%. Turkey’s inflation has retreated from 75.45% a few months ago.
Therefore, some analysts caution that the rate may start to stimulate inflation in the country by encouraging spending.
However, the bank reiterated that it was not abandoning a tighter monetary policy framework since its rates are among the highest globally. The bank also noted that inflation trends will determine the next rate cut or pause.
The CBRT governor noted that the cut balanced the need to lower inflation and boost economic growth. Recent data showed that the country’s economy slowed in the third quarter, a move that some analysts attribute to the higher interest rates that have affected borrowing.
The recent minimum wage increase contributed to the CBRT rate cut. The government boosted the minimum wage by 30% to about $627 a month, which investors welcomed. That was a notable move since about a third of people in the country earn the minimum wage.
Turkey’s government bonds sold off after the CBT rate cut. The ten-year yield rose to 28.20%, its highest level since November 21st. During the session, the five-year yield retreated to 31.50%.
The higher bond yields have attracted investors to the country, which has helped stabilize the lira this year.
The USD/TRY pair has also performed well due to the strong US dollar index, which trades at $108. This performance is mostly due to the Fed’s hawkish tone in the last monetary policy meeting.
USD/TRY technical analysis
USD/TRY chart | Source: TradngView
The USD to TRY exchange rate has been in a strong uptrend as the Fed turned hawkish and as hopes of CBRT interest rate cuts rose. It moved to a high of 35.25, much higher than where it started the year.
The 50-day and 25-day exponential moving averages (EMA) support the pair’s rally. It has also remained between the ascending channel, while the Relative Strength Index (RSI) has moved to the overbought level.
Therefore, the pair will likely continue rising now that the CBRT cuts rates while the Fed delivers a hawkish tone. The pair will likely rise to 40 in 2025 as long as it remains above the 50-day moving average.
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