The USD/TRY dropped as investors in forex reacted to the first Turkish central bank interest rate decision of the year. It is trading at 7.3825, which is substantially lower than the year-to-date high of 7.5397. The GBP/TRY and EUR/TRY have dropped to 10.13 and 8.97, respectively.
Turkish Central Bank decision
The Turkish Central Bank concluded its monthly monetary policy meeting and left interest rates unchanged. The bank left the one-week repo rate at 17.00% and the overnight borrowing and lending rates at 15.5% and 18.50%, respectively.
The bank had previously hiked interest rates in November and December to halt the steep sell-off of the Turkish lira. This was the third meeting by Naci Agbal, the new governor of the central bank. In his tenure, the lira has jumped by more than 8% against the dollar.
While most analysts were expecting the bank to leave rates unchanged, those at Societe Generale and Morgan Stanley took a contrary opinion. According to Bloomberg, their models were forecasting a 0.50% and 1% rate cut.
Still, when you adjust for inflation, Turkey has among the lowest interest rates in the world. The only major country with a lower rate is Malaysia, whose rate is at 3.5%.
Dollar weakness
The USD/TRY is also falling because of the overall weaker US dollar. The dollar index is off by more than 0.25% today, accelerating the losses that started early this week.
The reason for this performance is that the new Biden administration is committed to providing supersized stimulus to support the economy. He has already suggested a $1.9 trillion package and more will come in
