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The Central Bank of the Republic of Turkey (CBRT) announced on Thursday that it has hiked the repo rate by 200bps to 17.00%. The message is quite clear – the fight against inflation will continue. 

USD/TRY slumped to its lowest level since November 19 at 7.5570 while economists at TD Securities expect the pair to trade within a 7.60/7.70 next year.

Key quotes

“The CBRT has hiked the repo rate by 200bps to 17.00%, in line with our forecast and 50bps above the consensus. The CBRT’s statement is also serious act of realism, especially in the fight against inflation.”

“The CBRT seems serious about achieving its 5% target (although this is not for next year) and fixing Turkey’s structural problems. Further tightening (we forecast a final 100bps in January) may follow if data supports it. This is also a good message from the CBRT that will help the lira.” 

“For now, USD/TRY is trading at 7.5735 against our year-end forecast of 7.58. For 2021, we expect the lira to trade in a 7.60/7.70 range.”