USD/TRY prediction ahead of the CBRT interest rate decision

The USD/TRY price is moving sideways as investors wait for the upcoming interest rate decision by the Central Bank of the Republic of Turkey (CBRT). It is trading at 13.60, where it has been in the past few months. 

CBRT interest rate preview

The CBRT will conclude its two-day meeting on Thursday and then deliver its rate decision. All indications are that the bank will leave interest rates steady for the second straight month. This means that it will leave the headline rate steady at about 14%. 

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Other rates such as the overnight borrowing and lending rates will remain at 12.50% and 15.50%, respectively. Still, investors will focus on the tone that the central bank governor will deliver during the meeting. Any sign that he will cut rates further in 2022 will be negative for the Turkish lira.

There are reasons to believe that the CBRT governor will be cautious. For example, since he started his rate cuts, the headline consumer inflation data has moved from about 20% to more than 40%. Analysts believe that inflation is significantly higher than where it is today.

Sadly, inflation will keep worsening because of the rising oil and gas prices. Crude oil prices are approaching $100 per barrel, which is bad for Turkey since it is an importer. The cost of doing business has also risen, meaning that local producers will likely boost their prices. 

Still, there have been some good news from Turkey. For example, in January, Turkey announced a currency swap agreement with the United Arab Emirates (UAE). That cash injection helped Erdogan implement some of his domestic agenda ahead of the election.

At the same time, Erdogan has embraced a new economic model based on internal production. He believes that the model will help reduce the country’s chronic deficits.

USD/TRY forecast

 The daily chart shows that the USD/TRY pair has been stable in the past few months. Still, the price remains significantly higher than where it was at the same point in 2021. As a result, the pair is trading at the 25-day and 50-day moving averages while the RSI and other oscillators have been stable.

Therefore, there is a likelihood that the pair will remain in the current range after the CBRT decision. Still, some volatility cannot be ruled out in case of a change of tone.