How Do Possible Interest Rate Decisions Affect the Markets?

How do possible interest rate decisions affect the markets? How does the interest rate cut reflect on the US dollar and the stock market?

The markets paid attention to the interest rate meetings to be held by the US Federal Reserve (FED) on September 22 and the Central Bank of Republic of Turkey (CBRT) on September 23. Inflation figures from the US last week were below market expectations. The statements of the FED members that the inflation is temporary, which they have been expressing for a long time, were confirmed by the latest data. However, it is not possible to say that inflation concerns are over with this data, because inflation in the USA still seems to be at high levels. The step to be taken by the FED in reducing its bond purchases seems to have been delayed somewhat by the markets with the latest data. At this point, the statements to be made by the FED after the meeting on September 22 may affect the direction in the markets.

What awaits Domestic Markets?

In the previous week, Central Bank Governor Şahap Kavcıoğlu's statement that the focus was shifted from headline inflation to core inflation caused volatility in the markets and a slight upward movement was observed in the exchange rates. Following the statements of Chairman Kavcıoğlu, the FX reserve requirement ratios were increased by 200 basis points, and the eyes were turned to the Monetary Policy Committee (MPK) meeting on September 23. The general expectation in the markets is that the Center will not make a change in policy rates.

Surprise Developments May Happen

Prior to the latest statements, the weighted expectation in the markets was that the Central Bank would make its first interest rate cut in November and December. In fact, only 4 of the 21 institutions participating in BloombergHT's expectation survey said that they expect a discount 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 Governor Kavcıoğlu. Despite the high course of inflation, the interest rate hike seems to have fallen off the agenda of the markets. Quantity expectations for the first rate cut are concentrated at 50 basis points. At this point, we listen to Ufuk Korcan. Korcan said the following: "With the interest rate cuts being talked about in the past weeks, I stated that long-term options can be considered for those who do not like risk and invest their savings in fixed income instruments such as deposits. Now, the expectations for interest rate cuts are closer. Therefore, for those who do not risk their money despite high inflation, the current interest rates are less than 6 months in deposits. It can make longer maturities attractive, so that savers can be less affected by the reductions in the yields of interest reductions that may occur during the maturity period. In addition, those who prefer a maturity of 181 days instead of 180 days will pay a lower withholding tax for the interest income they will obtain. Up to 6 months (including 6 months) ) time deposit accounts are 5 percent, for deposit accounts up to 1 year (including 1 year), 3 percent withholding tax is taken.

What to Expect in Borsa Istanbul?

The weakness abroad was reflected in Borsa Istanbul last week. Stock markets, which will closely follow the FED and CBRT meetings this week, may see a new selling wave up to 1.414 and then 1.396 if the BIST 100 Index falls below 1.430 points permanently. The most important support to watch for the medium term is at 1,396 points. Hanging it under it may cause further deterioration of the technical appearance. In case of exceeding 1.450 in the index, purchases may increase and a new rise may be experienced up to 1.463. Above this level, 1,480 points can be targeted.

How Could the US Dollar Be Affected?

The US dollar, which was tested and withdrawn after the statements of CBRT Governor Kavcıoğlu the previous week, hovered between 8.42-8.47 TL for most of the last week. On the last trading day of the week, the exchange rates were above 8.50. In case of a pullback in the exchange rate, 8.40 and 8.38 TL stand out as support levels. In upward movements, 8.70 and 8.80 TL will be followed as resistance points. It is said that resistance points can be tested if the Central Bank cuts interest rates contrary to expectations. Here, the severity of the possible upward movement will be determined by both the amount of the interest rate cut and the statements between the lines of the Central Bank's statements after the interest rate decision.