Locals sell $1 Billion after CBRT’s policy rate cut

After the Central Bank’s (MB) interest rate cut, which bankers had difficulty explaining for economic reasons, the markets are focused on how fast the easing cycle will continue. The markets also follow the foreign exchange moves  of the locals, that is retail savers and corporate accounts.

Despite rising inflation, the CBT started the interest rate cuts that President Tayyip Erdogan had wanted for a long time, with 100 basis points in September. Economists had predicted that the policy rate would remain unchanged at 19 percent.


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After the MB’s easing move Thursday, dollar/TL rose from around 8.65 to 8.8080. The exchange ended the day at  around 8.84, still trying to find a new resistance level.

The volatility in the dollar/TL actually started with the first message of the CBT to investors that the interest rate cuts, which President Erdogan had long wanted, when the exchange rate  was around 8.3 at the beginning of the month.

As traders stated that the most important factor limiting the rise in dollar/TL yesterday was local foreign exchange sales, according to the estimates of a total of four traders, locals sold foreign currency between 1 and 2 billion dollars yesterday. Foreign exchange sales were seen in both corporate and individual segments.



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Market focused on next moves

Speaking to the Reuters agency, a bank’s foreign exchange desk processor said, “The unexpected decision of the CBT for some segments has exposed the TL to a serious selling pressure. On the other hand, using the rise as an opportunity, foreign exchange sales of at least 1 billion dollars by locals were the most important factor limiting yesterday’s depreciation in TL.”

The trader continued: “Unfortunately, we experienced this policy of premature interest rate cuts  two years ago, too. At that time, CBT sold FX reserves to limit the negative impact of wrong policies on TL. In case of the continuation of yesterday’s decision in the direction of rate reduction, either markets will revolt (Editor’s addition), forcing a reversal of the easing cycle or the public side (CBT and state-owned lenders) will have to intervene in the FX market to balance the exchange rate, again. For this reason, the speed of rate cuts is the main determinant for TL.”


Source: diken.com.tr

Translation: Cem Cetinguc



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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.