Turkey's Central Bank Hikes Key Rate to 35%, but Lira Barely Reacted

Its key interest rate equal to the one-week repo auction rate will be cut by 500 basis points to 35%. The rate decision follows a 500 basis point rate hike in September.

The central bank's Monetary Policy Committee said it had decided to “continue the monetary tightening process to determine the path of deflation as soon as possible, anchor inflation expectations and control the deterioration of price behavior.” The central bank said price increases were stronger than expected in Q3 and monetary tightening was needed policies to anchor inflation expectations and “control deterioration in price behavior.” The CBRT added that it would make further monetary policy decisions aimed at ensuring “a declining trend in underlying inflation” and lowering inflation to its 5% target over the medium term.

USDTRY initially moved lover towards 28.111, but in just half an hour the beleaguered currency jumped back to 28.157 per dollar, meaning FX traders are still waiting something more definite from the Turkish central bank, and want to see a healthier economy and improving its foreign trade balance, before they would start building trust to the currency.