USDTRY continues almost unchanged after the Central Bank of Turkey kept the interest rates unchanged to 8.25% surprising markets. Analysts expecting a 25 basis cut. CBRT has cut the interest rate for ninth consecutive meeting the last 12 months.
Turkey’s central bank noted that the economic activity weakened since the coronavirus outbreak, while the contraction became more severe in April. Economic data for the first half of May display signs of bottoming-out of the economy after the steps taken towards partial normalization. CBRT took the appropriate measures to ensure the healthy functioning of financial markets.
CBRT To Continue The Disinflation Process
The monetary committee reiterated that it would continue the disinflation process to achieve lower sovereign risk, lower interest rates, and more robust economic recovery in Turkey. CBRT will continue to use all available tools in pursuit of the price stability and financial stability objectives.
In recent months Turkey floods the market with dollars in an attempt to stabilize the Turkish lira. Today’s interest rate cut pushed rates deeper below zero at -3.15%, when adjusted for inflation (the annual CPI rate was at 11.4% in May) to one of the lowest levels in the world.
On Wednesday, CBRT announced that it was tripling the limit of the swap deal with Qatar to $15 billion. Turkey needs a source of foreign exchange due to its efforts to support the Turkish lira, with the central bank reserves down $17 billion since the beginning of the year to $89.2 billion.
USDTRY is 0.04% higher at 6.8504, unfazed by the CBRT decision as it continues the consolidation phase since the beginning of June. The Turkish lira is still down by around 16% since the beginning of the year. The technical picture has improved for the Turkish lira in the short term as the pair stays below the 50-day moving average. The long term outlook remains bullish for the pair despite the recent correction.
On the upside, the immediate resistance for USDTRY stands at 6.8586 the daily top. If the USDTRY pair breaks higher, then the next hurdle will be met at 6.8835 the 50-day moving average. If bulls breach that level, then the next target will be met at 6.9712 the top from May 14th trading session.
On the contrary, initial support for USDTRY stands at 6.8350 the daily low. The next support area stands at 6.7668 the low from June 11th trading session. More bids might emerge at 6.6809 the low from June 2nd.