Next week, the Central Bank of the Republic of Turkey (CBRT) will hold its orientation meeting. TD Securities analysts expect the CBRT to reduce the repo rate by 100 basis points to 7.25%. They believe that the TRY will work on the basis of swap activity rather than the CBRT rate decision.
“We believe the lira will work based on swap activity rather than CBRT’s decision on rates. We expect a minor negative reaction for TRY if the CBRT drops 100 basis points as we expect, but could recover soon after. For now, we see TRY well supported vs USD on the back of the swap agreements as the CBRT increases daily. With three major swap redemptions next week, before and after the CBRT meeting, we will see how TRY reacts to them. A neutral reaction on May 18 and 20 will likely leave the USDTRY relatively neutral compared to a CBRT drop.
Completely dysfunctional cash rates leave us wondering how the market is positioned for this event. The consensus is for 50bps lower, but we expect a drop of 100bps. A rate reaction is unlikely to reflect the CBRT’s decision next week. “