Global macro overview for 13/09/2018
The Turkish Lira is experiencing dramatic moments recently. In connection with the rise in inflation to almost 18% and uncertainty regarding the future monetary policy of the country, its value against the US dollar has fallen by 40%. As it turns out, the Turks had the opportunity to strengthen their currency and took advantage of this opportunity.
Although a few hours before the planned publication could be seen an increase in uncertainty associated with the statement of President Erdogan, who announced that in his opinion Turkey should lower interest rates and not raise them, then finally the government did what it belonged to him. Despite the already optimistic forecasts assuming an increase in the interest rate to 22% from 17.75% so far, it was finally raised as much as 24%. So it turns out that the Central Bank of Turkey has not been scared of its leader. In today’s statement on monetary policy, we can read, among other things, that the Bank does not rule out further interest rate increases if it is necessary. It is necessary to tighten monetary policy considerably until inflation prospects improve.
The big problem now, however, is whether the central bank will be able to maintain its independence in the light of dovish comments by Erdogan. If only the TCMB will be able to maintain its monetary policy path, it will be a big change that could strengthen the Turkish Lira. However, if Erdogan continues to insist that interest rates should be lower, this can only be a short-lived relief.
Let’s now take a look at the USD/TRY technical picture at the H4 time frame. The market reaction to this decision was immediate. Turkish Lira significantly gains in value as a result of which USDTRY currency pair pairs have reached the lowest levels since August 27 this year.