As
expected, Turkey’s central bank cut interest rates by 100 basis point to 15% from 16% earlier. Although the Turkish lira didn’t initially fall any further, the beleaguered currency then hit a new record low after two conflicting headlines hit the wires one after another:
TURKEY'S CENTRAL BANK SAYS MIGHT EASE POLICY AGAIN IN DECEMBER
TURKISH CENTRAL BANK CONSIDERS TO END RATE CUTS IN DECEMBER
The market clearly doesn’t take the CBRT seriously anymore, as it has lost any little credibility it had. Erdogan is running the show. If he want’s lower interest rates he will get lower rates, regardless of how high inflation might be or how the economy is doing. So, with the CBRT head saying the central bank will consider ending rate cuts in December, then he might as well consider a new job!
It is very difficult to see the light at the end of the tunnel for the Turkish lira unfortunately. The slumping currency may make holidays cheaper and boost exports. But foreign demand for Turkish products and services will have to rise materially to offset the negative impact of the currency crisis and inflation on the economy. If the TRY is to find support, it will have to come from fiscal policy as monetary policy is in tatters.
The USD/TRY could be heading north of 11.00 days after breaking the 10.00 handle. Likewise, the EUR/TRY looks highly likely to rise to new records above 12.50.
Source: ThinkMarkets and TradingView.com
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