The Turkish Central Bank (CBRT) has just announced that it has cut the one-week repo auction rate (i.e. the policy rate) by 425 basis points to 19.75% from 24%. This was a more aggressive rate cut than the market had expected, and this has sent the USDTRY into a very choppy market action. The USDTRY spiked more than 500 pips initially, then retraced by a 1,140 pips to the downside, before regaining some of the lost ground. The USDTRY is currently trading at 5.69477, which is about 200 pips below the market price at which the news was released. However, price action continues to whipsaw and price activity is very fluid.
The CBRT noted that released data indicate that there is a moderate recovery in economic activity in the country. It also noted that the external balance is being impacted positively by the composition of growth, and that the “weaker global economic activity has strengthened the possibility that advanced economy central banks will take expansionary monetary policy steps.” The CBRT says that it is also monitoring the uncertainty in global economic policies very closely with regards to the impact on international trade and capital flows.
The aggressiveness of the rate cut is expected to satisfy the yearnings of the central government, after President Recep Erdogan sacked the former CBRT chief over a difference in opinion about the interest rate direction. Erdogan has long favoured rate cuts while the previous chief preferred to hold rates.
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