Forex Flash: CBRT surprises with wider rate cut than expected, by 50bp to 5% - TD Securities

FXstreet.com (Barcelona) - TD Securities analysts reported the widely expected repo rate cut by the CBRT decided at their April 16th meeting. “They cut 50bp to 5.00% instead that 25bp we and the consensus had expected. The CBRT also slashed the overnight rate corridor (both lending and borrowing rates) by 50bp, in line with our forecast (consensus looked for -25bp on the lending rate and -50bp for the borrowing rate)”, wrote analyst Cristian Maggio, considering it a strong message to the market that short-term rates should be lower, hence the lira weaker. “The market was positioned for a dovish outcome, but the combined CBRT measures came in even more loose than expected”, continued Maggio, adding that the CBRT also decided to withdraw additional liquidity by increasing the ROCs by 0.2 on all tranches but the first one of FX reserves commercial banks hold at the CBRT. “The effect should be $1.4bn of liquidity drained from the market”, he concluded.

In regard to the FX market, the USD/TRY had a kneejerk spike to 1.7986, but as the pair failed to break the psychological level of 1.80, it is now retracing at the pre-announcement levels. “However, we continue to consider the lira as rich against USD and EUR at these levels. Surprisingly enough, the TRY REER moved below 120 to 119.58 after the CBRT’s announcement”, wrote the TD Securities analyst.