The USD/TRY price has been in a consolidation phase in the past few months and is hovering near its all-time high. It was trading at 18.60, which was slightly below the all-time high of 19.25 ahead of the upcoming CBRT decision.
CBRT interest rate decision
The USD/TRY price has been in a bullish trend in the past few months. It has surged by almost 50% this year due to the strong US dollar index and the extremely dovish Central Bank of the Republic of Turkey.
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The CBRT will conclude its monetary policy on Thursday. Economists expect that the bank will slash interest rates by 100 basis points for the third straight month. If this happens, the bank will bring rates down to 11%. In addition, the bank will slash the overnight lending and borrowing rates to 12.50% and 9.50%.
The CBRT has taken an unconventional monetary policy by embracing a dovish tone in a period of high inflation. As we wrote in recent forex news, t data shows that the country’s inflation surged by more than 80% in September and analysts expect the trend to continue.
As such, these policies have made the Turkish economy relatively worse at a time when it should be doing well. For one, recent data shows that the important tourism sector has done well in the past few months.
Meanwhile, with an election coming up in 2023, Erdogan is planning more spending, which will be inflationary. For example, the government is building over 500k new homes, which is expected to cost more than $50 billion. At the same time, the government expects to run to a $25 billion budget deficit.
It seems like the recent currency swap between the Turkish and South Korean central bank is not working. South Korea transferred $780 million to the CBRT in a swap deal. Turkey also has a $28 billion deal with China, UAE, and Qatar.
USD/TRY forecast
The daily chart shows that USD/TRY price has been in a strong bullish trend in the past few months. It is hovering slightly above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved above the overbought level.
Therefore, a combination of Fed tightening and CBRT easing will likely lead to more Turkish lira weakness. If this happens, the next key level to watch will be at the all-time high of 19.20. A move below the support at 18 will invalidate the bearish view.
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