USD/TRY Increases When Turkish Central Bank Delivers an Unexpected Large Cut

USD/TRY has increased when central banks have released a large cut. It’s seen that the Turkish central bank has cut down the rates that it uses to lend money to commercial banks in the event of a paucity of funds. They have cut it to 16% that including 200bps mark that is unexpected by the Turkish government officials. Its shocking news that comes straight from the market as they only used to cut it to 50-100bps in the past. Not to ignore that this cut has arrived in the middle of the atmosphere where there is inflation pressure rose on the Turkish government.

Inflation has occurred as the currency of Turkey (USD/TRY) is not strong and the EM central banks have a tight policy regarding their rules. The present president of Turkey Mr. Recep Tayyip Erdogan has suggested the staff to lower the interest rates so the inflation rates are also get lowered automatically. However, this may not be the right step taken by the government in this situation no matter the Turkish central bank is finding it comfortable. Things should be changed soon to improve the Turkish lira.

The Turkish banks observed that because of the supply-side factors, opportunities will be limited until the year ends and won’t change the economic conditions policy rates. USD/TRY has thus helped to decrease the inflation rates. The ministry, though, has given the reminder in the initial days of the year that policy rates will rise above the inflation rates. However, President Erdogan has claimed that he might decrease the policy rates shortly.

It’s a matter of discussion that USD/TRY cannot reach the 10.00 level in the forthcoming months. Interest rates and inflation rates are all a separate topic of discussions that need to be considered seriously by the union of Turkey. Both things are equally mandatory to run the country.

No matter what, the instability of the Turkish lira is a positive point for the equity traders, especially those who are dealing with the Spanish banks and IBEX 35.