USD/TL Skyrocketed After The Interest Rate Cut

After the interest rate cut, the USD/TL exchange rate skyrocketed. The CBRT lowered the policy rate to 18 percent.

The USD/TL rate reached an all-time high, seeing the level of 8.8017 in the first transactions, following the decision of the Central Bank of the Republic of Turkey to cut the policy rate by 100 basis points. The highest level seen before was 8,8008. The Central Bank of the Republic of Turkey cut the policy rate by 100 basis points to 18 percent. The general expectation of the market was to keep the interest rate constant at 19 percent. Turkey's credit default risk premium (CDS) rose 14 basis points to 409 basis points, while the 5-year bond yield hovered around 18.36 percent.

CBRT Changed Discourse

USD/TL exchange rate had increased by more than 4 percent in September as the rise in inflation exceeded the policy rate and the CBRT turned its focus to core inflation. While the Turkish lira was the developing country currency that lost the most value since the change in discourse, the Hungarian forint took the second place with a decrease of 3.40 percent. In his speech at the German-Turkish Chamber of Commerce and Industry economy meeting, CBRT Governor Şahap Kavcıoğlu stated that the Central Bank has shifted its focus from headline inflation to core inflation. Kavcıoğlu underlined that the extraordinary conditions brought by the epidemic increased the importance of core inflation and said, "In global central banking, while determining the monetary policy stance, core inflation indicators that are free of short-term incidental factors that are outside the influence of monetary policy are taken as a basis."