USD/TRY: Will the Turkish central bank rate hike save the lira?

June 21, 2023 10:40 PM PDT | By Invezz

USD/TRY: Will the Turkish central bank rate hike save the lira? — Image source: Invezz

Turkish central bank decision

The Turkish central bank embraced an unconventional monetary policy stance in 2022 as inflation jumped. While other central banks were hiking rates, the bank decided to slash them. As a result, inflation soared to almost 100% while the Turkish lira plunged to a record low.

Most recently, the Turkish government went on a spending spree to help Erdogan get re-elected. The government hiked wages and started huge projects. As a result, the country’s foreign reserves have continued to fall in the past few months. Net reserves plunged to minus $5.7 billion in May.

Therefore, traders will focus on the Central Bank of the Republic of Turkey (CBRT) meeting that will conclude on Thursday. Economists believe that the bank will start pivoting now that Erdogan has won his re-election.

According to a Reuters poll, all economists expect that the bank will hike rates in this meeting. The median estimate is for the rates to rise to 20% from the current 8.5%. If this happens, it will be the biggest rate hike that the bank has implemented in modern times. The economists also expect the bank to deliver more rate hikes this year.

A rate hike will likely be welcomed by USD/TRY investors. However, the challenge is that an increase will mean that the bank is not independent and that it is being used as a political tool by the president. Moreover, it is not the first time that the bank has hiked rates after the election.

USD/TRY technical analysis

USD/TRY chart by TradingView

Turning to the daily chart, we see that the USD/TRY price has been in a strong bullish trend for a long time. Most recently, the pair has been in a tight range at its all-time high. It has formed what looks like a bullish flag, which is usually a bullish sign. The pair remains above all moving averages.

Therefore, there is a likelihood that the USD/TRY pair will have a bullish breakout even if the CBRT pivots with a rate hike on Thursday. If this happens, the pair will likely rise to the next psychological level at 24.

The post USD/TRY: Will the Turkish central bank rate hike save the lira? appeared first on Invezz.

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