In a mostly uneventful day in the markets, the Turkish lira came under the spotlight – unfortunately once again for all the wrong reasons. It slumped to new record lows against the dollar and euro after Turkey’s not-very-independent central bank (was forced by Erdogan, the de-factor Governor of CBRT as well as the country’s President) to slash rates by 200 basis points to 16 percent. Analysts who had expected a rate cut were calling for a meagre 50-100 basis points. The rate cut comes despite inflation being close to 20% in Turkey and after the dismissal of three hawks at the central bank last week. The writing was always on the Wall. The rate cut has exacerbated hyperinflation worries and investors decided to further abandon the TRY as a result. The CBRT says inflation is transitory, but by cutting rates further, the market will need some convincing to trust the lira again. Against this backdrop, you would have to think that more weakness is likely for the TRY, and we could even see USD/TRY reach for 10.00 in the not-too-distant future.
Source: ThinkMarkets and TradingView.com
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