The Central Bank of Turkey (CBT) December 24 monetary policy meeting in which policy rate increase of 200 basis points to 17.0 percent raised 15,0’t percent level. In the two meetings held after this meeting, interest expectations for the CBRT’s meeting to be held tomorrow have been shaped around 100 basis points. After the CBRT’s tightening policy, prices were stabilized around the level of 7.50 with the increasing political tensions regarding the domestic market in Turkey, which retreated to the level of 6.90. We see that the expectations for the CBRT have been triggered at the point that the exchange rate will recover its losses so quickly.
Regarding the meeting of the CBRT that will take place tomorrow, it is seen in the latest expectation survey that raising the 2021 year-end inflation expectation to 11.54 percent raises the possibility of a 100 basis point rate hike decision. Central Bank of the Republic of Turkey for two months in the market to support policies on the interest received on idling reserve requirement by 200 basis points to continue for a while worked steadily increased across all maturities. However, this step did not have much impact on the markets. How the CBRT will steer the tightening steps through the interest rate policy in order to prevent the negative damage due to the epidemic, which has an effect on inflation, will be shaped at the meeting tomorrow. It seems inevitable to take an interest rate step, especially in terms of gaining investor confidence and maintaining an outlook below the 7.50 level.
Institutional Expectations Are Close
- Morgan Stanley (NYSE 🙂 expects a 100bp increase at the Monetary Policy Committee meeting on March 18th.
- Goldman Sachs changed its view regarding the MPC meeting on March 18 that the interest rates would not be changed and determined its expectation from the CBRT as a 100 basis point rate hike.
- Citigroup rates the Central Bank of Turkey announced that they are expected to increase 50 or 100 basis points.
- While the JP Morgan revised its year-end inflation forecast Turkey, will be held in March underlined that they expect 100 basis point interest rate hike at the meeting.
- Deutsche Bank stated that they expect an interest rate cut of 100 basis points from the meeting tomorrow, and made a remarkable statement that they expect a 300-400 basis point rate cut from the CBRT after the second half.
Do Prices Change?
Following an interest rate decision to be taken above expectations at the CBRT meeting on March 17, with the appreciation triggered by the Turkish Lira, the withdrawal movement in the currency may gain speed. In particular, the CBRT’s 100 basis point rate hike may not lead to a serious realization in the exchange rate at the point of pricing expectations earlier. On the other hand, if the interests are kept constant, we can see that deep losses occur on TL assets. However, in line with the expectations of the institution, we expect to gain power over TL assets, albeit to a limited extent, following an interest rate hike decision.
Before the CBRT meeting, it is observed that the pricing of below 7.55 level is observed due to the pricing of light expectations in the exchange rate. With the USD / TL outlook below 7.55, retractions can be expected to accelerate below the 7.5235 level, within the framework of the support levels 7.47 and 7.40, following an interest rate decision from the CBRT. In the contrary scenario, if the CBRT keeps the interest rates constant, with the exchange resistance of 7.6030, the rises may reach the resistance thresholds of 7.6940 and 7.79.
The strengthened TL assets due to the interest rate policy maintained by the CBRT for a while brought with it a retreat movement of up to 8.33 in euro / TL. However, in the parity where losses were compensated in a short time, it is seen that the prices stabilized above the level of 8.90.After the interest rate hike decision in line with the expectations from the CBRT, we follow the support levels of 8.80 and 8.70 gradually in closings below the level of 8.90. However, if the CBRT’s effect is limited, the resistance of 9.0 and the resistance levels of 9.08 and 9.15 will be taken into consideration in the upward trend.
Despite the withdrawal momentum in USD / TL assets, the outlook above the level of 415.0 is maintained in prices. Especially, the fact that the upward momentum is maintained continues to trigger the downward scenario on the ounce gold side. Especially, after the Fed meeting to be held today, the CBRT meeting that will take place tomorrow seems to cause an increase in activity on the gram gold side. In case of realization of the interest rate hike expectation for the CBRT meeting, the declines in precious metal may gain momentum with support levels of 408.0 and 400.0 below the 415.0 level. If the CBRT leaves the interest rates unchanged and switches to monitoring the markets, we first follow the closing above the 421.0 level. Above this level, resistance levels 430.0 and 440.0 will be important starting points.