USD/TRY: Will Turkey’s Central Bank decision save the lira?

July 20, 2023 01:00 PM AEST | By Invezz

USD/TRY: Will Turkey’s Central Bank decision save the lira? — Image source: Invezz

CBRT decision ahead

The Turkish central bank will deliver another closely watched interest rate decision on Thursday. Economists expect the bank to continue hiking interest rates in a bid to stabilize the significantly weaker currency.

Precisely, economists polled by Reuters expect the bank to hike by 5%, bringing the main interest rate to 20%. In the last meeting, the CBRT decided to push rates to 15%, lower than what analysts were expecting.

This interest rate decision comes when the CBRT is working hard to boost the lira. Official data shows that the bank has started to buy more liras than it sells. The government had pushed too much liras to the economy ahead of the recent election.

The CBRT has therefore become a net borrower of the local currency for the first time since 2020. At the same time, the amount of liras being pushed to the economy has increased, leading to lower rates on lira-denominated assets. For example, the average deposit of up to three months dropped to 37.8%.

The Turkish lira will likely remain under pressure in the coming months unless the central bank delivers a substantial rate hike in the near term. While the recent data showed that inflation dropped again in June, the falling currency means that prices will remain at an elevated level for a while.

The USD/TRY price has jumped even as the US dollar index (DXY) has retreated in the past few weeks. The dollar index retreated below the support of $100 for the first time in months.

USD/TRY technical analysis

USDTRY chart by TradingView

I warned that the Turkish lira is on the verge of more weakness in my last article. This forecast was correct since the currency has continued slipping in the past few days. Looking at the daily chart above, we see that the USD/TRY moved above the upper side of the bullish flag pattern.

As expected, the pair remains above all moving averages while the price has gotten overbought. Therefore, the pair will likely continue rising in the coming months as buyers target the next psychological level at 30.

The post USD/TRY: Will Turkey’s Central Bank decision save the lira? appeared first on Invezz.

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