lira sits and waits for the CBRT decision

The Turkish lira continued its consolidation near its record low as investors braced for the second CBRT decision of the year. The GBP/TRY exchange rate was trading at 22.80, which was a few points below its all-time low of 23.47. 

CBRT decision ahead

The main catalyst for the GBP/TRY and USD/TRY is the upcoming meeting by the Central Bank of the Republic of Turkey (CBRT). This will be a crucial meeting because it will be the first one since Tukey lost over 40,000 people in its biggest earthquake in modern times.

Therefore, investors will want to see whether there will be any policy changes by the bank. The main expectation is that the CBRT will leave interest rates unchanged at 9%, where it has been in the past few months. 

The CBRT could catch investors by surprise by delivering a 50 basis point rate cut in its bid to support the economy. Besides, data published this month showed that Turkey’s inflation was easing. According to the statistics agency, the headline consumer price index (CPI) rose by 57.7% in January after rising by 67% in December. It was above 85% at its peak.

As such, while inflation remains at uncomfortable levels, the CBRT could declare victory by showing that it is able to lower both rates and prices. Also, it could justify the rate cut as a way of supporting households. In a note, a Bloomberg economist said:

“Despite the falling inflation rate, the level remains elevated at more than 11 times the central bank’s target of 5%. The central bank, however, is likely to deliver policy rate cuts before mid-year elections.”

The GBP/TRY is also reacting to a change of tune by Citigroup analysts. In a note on Wednesday, the analysts said that UK’s inflation will likely drop to 2% in November. In 2022, analysts warned that prices could surge to 18.3% this year.

GBP/TRY forecast

GBP/TRY chart by TradingView

The Turkish lira has been in a consolidation phase in the past few months as the central bank implements a liraization strategy. It has continued to oscillate at the 23.00 level. As a result, the pair is hovering at the 25-day and 50-day moving averages. It is also above the ascending trendline shown in red.

Therefore, the pair will likely remain in this range unless the CBRT catches the market by surprise. An extremely dovish statement will see it jump to the key resistance at 23.28.