TRY continues to devaluate. USD/TRY broke another record at 10.73 while EUR/TRY hit 12.17.
The exchange rate of USD has increased by more than TRY 2.00 since September 8, when the Central Bank Governor Sahap Kavcioglu emphasized core inflation, according to daily DUNYA Finance Editor Sebnem Turhan.
And all eyes are on the Monetary Policy Committee’s (PPK) interest rate decision today. The policy rate is mainly expected to be lowered. President Recep Tayyip Erdogan’s ‘low interest rate’ message at AK Party’s group meeting has further strengthened this expectation. Erdogan said his party will remove the the interest rate burden from the nation. “We cannot let the nation be crushed by the interest rate. I will continue my fight against the interest rate as long as I am in this position. Those among us who defend high interest rates should not take offense. I cannot and will not defend interest rates on this journey,” Erdogan added.
So, there are three options for the Central Bank. It may keep the policy rate steady at 16%, may increase it, or may reduce it in line with expectations. Market players estimate an interest rate cut of 50 to 150 basis points.
The level of the interest rate cut is important, according to Soner Kuru, Assistant General Manager of Marbas Menkul Degerler. “USD/TRY will hold on the 10.50 resistance point in case of an interest rate cut up to 150 basis points. If it is reduced by 200-250 basis points, the 10.50 resistance will be broken. And we’ll expect two-digit figures to be permanent,” Kuru said.
If the policy rate is lowered, the upward trend in USD/TRY may continue based on the attitude of its cut, according to Taner Ozarslan, Economist and Founding Partner of Sparta&Co. “If the interest rate remains steady, there will be a downward trend towards 10.00 and below. The policy rate should be increased to a level that will provide real interest rate around 1-3 points,” Ozarslan noted.
President Erdogan’s statements have raised investors’ concerns over a higher interest rate cut than expected and have led to new losses in TRY, according to Ugras Ulku, Emerging Europe Head of the Institute of International Finance (IIF). “If the Central Bank avoids reducing the policy rate above the expectations, or keep it surprisingly steady at 16%, TRY will probably be in a relief rally,” he said.
The business world generally awaits predictability on foreign exchange rates and says the Central Bank shouldn’t lower the interest rate.
The Central Bank will hold the PPK meeting (2.00 pm).
The net international investment position (IIP) posted USD 285.6bn deficit in September, according to the Central Bank.
The Central Bank and the Banking Regulation and Supervision Agency (BDDK) will release weekly money and banking statistics (2.30 pm).
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