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Next week, the Central Bank of the Republic of Turkey (CBRT) will have its policy meeting.  Analysts at TD Securities expect the CBRT to cut the repo rate by 100bps to 7.25%. They think the lira (TRY) will perform based on swap activity rather than CBRT’s rate decision. 

Key Quotes: 

“We think the lira will perform based on swap activity rather than CBRT’s rate decision. We expect a minor negative reaction for TRY if the CBRT cuts 100bps as we expect, but may recover shortly after. For now, we see TRY well supported vs USD on the back of swap agreements that the CBRT is growing daily. With three large swap redemptions next week, before and after the CBRT meeting, we will see how TRY reacts to them. A neutral reaction on 18 and 20 May will likely leave USDTRY also relatively neutral to a CBRT cut.

“Completely dysfunctional cash rates leave us wondering how the market is positioned for this event. The consensus is for 50bps lower, but we expect a 100bps cut. Any rates reaction is unlikely to reflect the CBRT’s decision next week.”