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Lira slumps as CBRT removes hiking bias

13:53 25 April 2019

Summary:

  • CBRT keep all rates unchanged

  • Removes pledge for further tightening if needed

  • Turkish Lira losses over 1% vs USD and EUR

 

The Turkish central bank has followed the lead set be its more well established peers in abandoning a hiking bias in a move that has sent the Lira tumbling lower. This week there’s been similar messages from the BOC and RBA after the FED and ECB have already made marked large shifts to the dovish side. However, the comparisons with more developed central banks fail to take into account the economic situation in Turkey and with inflation still rampant in the emerging economy the move to a less hawkish stance could spell bad news for the Lira.  

USDTRY has surged by around 1.5% since the CBRT news broke. Price is now back up near the 6.00 handle. Source; xStation

As far as the main rates were concerned there was no change with the one-week repo rate and late liquidity window rate both held steady at 24%. The main market moving news came from the accompanying statement as the CBRT removed a key line that pledged further tightening to be delivered going forward. Selected comments from the statement are as follows:

 

According to the CBRT: “Developments in domestic demand conditions have led to some improvement in inflation indicators. Yet, higher food and import prices and the elevated course of inflation expectations point to continued risks to price stability. Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement.”

 

While the tone of this may appear fairly hawkish from a neutral base it is in fact far less so than previous iterations. One final point to note is that there’s been speculation doing the round in recent weeks that the CBRT were attempting to prop up the Lira before the regional elections around a month ago. There were concerning declines seen in the reserves of the CBRT which fuelled these rumours and with the USDTRY now at a 6-month high the market is clearly seeing some weakness in the Lira.

USDTRY is now attempting to break above the 38.2-41.4% fib retracement at 5.8940-5.9572 from the highs of 7.1125 seen last August. Source: xStation  

 

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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