According to economists at Commerzbank, the FX market was unimpressed by the Turkish central bank’s (CBT) possible surprise in the hawkish direction.
As significant elections get closer
“A lot of observers had predicted that CBT would cut its benchmark rate by 50 bps yesterday. So, the hold decision was in theory a hawkish shock.
But many pundits still believe that a rate drop for next month is still likely. Probably for this reason, the hold decision made by CBT had little effect on USD/TRY.
Our base-case scenario may be that Erdogan will retain his presidency, but surveys indicate that he faces a real challenge. “We are nearing vital elections. The market is justified in not taking a strong position at this time because the outlook for rates is very “bifurcating” under the two competing scenarios.
Of course, none of this negates the possibility that the Lira’s lack of reaction may be mostly attributable to the fact that as capital controls have been enforced more frequently, the country’s currency has grown increasingly cut off from global markets.