CBRT Raises Rates, Pushing Turkish Lira Up

The Turkish lira has aggressively rallied this morning after the Central Bank of the Republic of Turkey raise the one-week repo rate by +100 bps to +17.75%.

Over 60% of FX dealers were expecting a tighter monetary policy, but by +25 to +50 bps.

USD/TRY has fallen to a one-week low of $4.4570 (-1.83%), down from $4.5750 before the decision.

Today’s hike comes a couple of weeks after the CBRT raised rates and switched focus to the one-week repo rate to ease lira weakness.

Note: The lira had hit new record lows before the increase because the central bank was not responding to TRY’s fall and investors were doubting its independence from President Erdogan’s government.

EUR/TRY is trading atop of €5.5300, down -1.44%.

Is this a temporary solution?

The reason why it’s a temporary recovery and not a more permanent one is because the major issues behind lira’s weakness are Turkey’s current-account deficit and external financial need.