Markets locked on interest rate decision of CBRT: How will it affect the US dollar and BIST

Markets are focused on the interest rate decision of both the US Central Bank (Fed) and the CBRT next week. After the statements of KAVCIOGLU, the Head of the CBRT the previous week, the number of people expecting a surprise discount has increased. So, how will possible interest rate decisions affect the markets?

The interest rate meetings of the US Central Bank (FED) on September 22 and the Central Bank of the Republic of Turkey (CBRT) on September 23 are of critical importance. Last week, inflation figures from the United States fell short of market expectations. The statements of Fed members that the inflation they have been expressing for a long time is temporary have been confirmed by the latest data. But it’s too early to say that inflation concerns are over with this data. The reason being, inflation is still at high levels in the United States.

The FED’s move to reduce bond purchases seems to have been somewhat delayed by the markets with the latest data. At this point, the FED’s statements after the meeting on September 22 are of importance that may affect the direction in the markets.

In the meantime, Central Bank Governor KAVCIOGLU said that the focus had been turned from headline inflation to core inflation, which in return caused mobility in the markets and some upward movement in exchange rates.

After the statements of KAVCIOGLU eyes were turned to the meeting of the Monetary Policy Board (PPK) on September 23 after the increase in the foreign currency mandatory exchange rates by 200 basis points had been made. The general expectation in the markets is that the CBRT will not change its policy rates.

EXPECTATIONS OF SURPRISE HAVE INCREASED

Before recent statements expectation in market was the Central Bank would make its first interest rate cuts in November and December. In fact, only 4 out of 21 institutions that participated in the Bloombergh’s expectations survey said that they expected discounts in September and October

However, there is an increase in the number of experts who think that a surprise discount may come after the statements of President KAVCIOGLU. Despite the high inflation rate, it seems that the interest rate hike is off the agenda of the markets. Expectation for the amount of the first interest rate cut is 50 basis points.

OPTION OF LONG-TERM DEPOSITS

For those who will not risk their money despite high inflation, the current interest rates may make it attractive to have maturities longer than 6 months on the deposit. Thus, savers may be less affected by the reductions that may occur on the yields of interest rate cuts that may be in the maturity process.