Lira traders rejoice

Turkey rate cut is not as big as some feared
Chief Investment Office13 Sep 2019
Photo credit: AFP Photo

While Turkey’s interest rate cut was bigger than some expected, lira traders rejoiced that it was not as deep as feared.

The currency advanced as much as 1.5%, the most among its major peers globally, after the central bank lowered the one-week repo rate by 325 bps, 50 bps more than the median estimate in a Bloomberg survey. Some had speculated policymakers would slash rates much more aggressively after President Recep Tayyip Erdogan suggested that Turkey would lower rates into the single digits “soon”.

The reduction was also in line with swap pricing, a sign that the monetary authority was not looking to fight the market.

While the cut to borrowing costs brings the nation’s real rate down to 1.5% – at least a percentage point below that of South Africa and Russia – inflation is seen slowing by some 500 bps to below 10% through October. That has given Governor Murat Uysal room to unwind some of the monetary tightening delivered amid a currency crisis last year without completely sacrificing the real rate on offer.

The nation’s 10-year bond yield dropped 65 bps to 15.1%, near the lowest level since early-August, and stocks traded at the highest level since July. The lira traded 1.5% stronger at 5.6648 per dollar as of 3:06 pm in Istanbul, extending its rally after the European Central Bank cut interest rates further below zero and said it will start open-ended bond purchases. – Bloomberg News.

The US Dollar Index (DXY) fell 0.34% to 98.309 on Thursday, the pound inched 0.07% higher to USD1.2335, and the euro rose 0.50% to USD1.1065. The yen declined 0.26% to 108.10 per dollar.

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