With The Continuous Narrowing of The Interest Rate Corridor, We Should Be Prepared For Currency Volatility​

Odeabank's Economic Research and Strategic Planning Director Ali Kırali says that upon CBRT's narrowing of interest rate corridor and the increased global risks, investors should be prepared for currency volatility in the coming days.

Odeabank's Economic Research and Strategic Planning Director Ali Kırali, evaluating the possible outcomes of US Central Bank's (Fed) postponing of a rate increase in its meeting on June 15, said: “Fed not raising the rate but keeping two rate increases on the table until the end of the year, combined with global risks including Brexit mean that the uncertainty in markets will continue. On the other hand, Central Bank of the Republic of Turkey (CBRT) has been narrowing the interest corridor for some time. Thus more currency volatility can be expected in the coming days.”

Kırali stated that CBRT's narrowing of the interest rate corridor by cuts made in the upper band of the rate corridor increases the vulnerability of the TL, saying: “Month of May was a concrete example of this. TL went through a stark value loss in May when global appetite for risk was weak and political ambiguity was high.”

Kırali added: “In fact, we would expect a wider interest rate corridor on the upper band to keep TL strong in fluctuations like the ones we experienced last month and might experience in the upcoming period. However, with the cuts made in the upper band CBRT has made a choice towards a less volatile interest rate but more volatile currency rate by narrowing the rate corridor. For this reason, we think that in the coming months more currency volatility can be expected. The currency volatility will also create risks towards a higher inflation outlook.”