Turkish central bank (Central Bank of Republic Turkey) left its benchmark one-week repo rate unchanged at 7.5% on April 20th, as widely expected, saying it will maintain the tight monetary policy stance considering the current inflation expectations and pricing behavior.

The bank, however, lowered its overnight lending rate for a second time in a row to 10%, signaling a willingness to ease policy despite high inflation, while it kept the overnight borrowing rate at 7.25%.

Market interest rates in Turkey have come down sharply since the Fed turned less hawkish in Q1, thereby removing pressure from the lira: the 10-year government bond yield has fallen by 200bps from 11% to near 9%.

In Turkey's case, the overnight lending rate (the upper limit of the corridor) is used as an 'insurance policy' which allows CBT to temporarily tighten monetary conditions when the lira is under attack.

By lowering the rate itself, CBT limits the maximum interest rate at which it can intervene – and it does without any additional benefit which could not be achieved by letting the tool become dormant.

Hence, this is about political signalling: most readers are aware that CBT is under pressure to bring down interest rates in the economy, and bringing down less used rates, especially while inflation dynamics are supportive, is arguably a lesser evil.

Technically, USDTRY bearish momentum stronger after breaking support at 2.8218 levels, today even though pair is spiking the current prices have been well below DMAs and 7DMA crosses over below 21DMA which is still a sell signal. Leading oscillators converge downwards but little indecisive, while MACD is indicative of bearish bias, on the contrary we could also see a strong support at 2.8069 levels.