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.

The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.

The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.