TURKEY: Moody’s Rating Upgrade Supports TRY Ahead of CBRT

USD/TRY is trading 0.4% lower today, placing the pair at its lowest level in over a week ahead of tomorrow’s CBRT rate decision. A Moody’s rating upgrade and sustained efforts by policymakers to improve the transmission of monetary policy are among the factors providing relief to the lira, with additional measures designed to supplement rate pauses expected to be forthcoming. Our full preview of tomorrow’s decision can be found here.

• Moody’s followed S&P and Fitch by upgrading Turkey’s credit rating on Friday - up two notches to B1 with a positive outlook. “The key driver of the upgrade to B1 is improvements in governance, more specifically the decisive and increasingly well-established return to orthodox monetary policy,” Moody’s said. The upgrade highlights success in policymakers’ attempts to shift to a more orthodox economic framework.
• Additionally, in the latest of a series of measures designed to improve the transmission of policy, the central bank lowered the monthly growth limit for FX loans from 2% to 1.5%. Given rates are unanimously expected to be held tomorrow, the central bank is likely to continue to implement measures focussed on draining excess lira liquidity as an alternative tightening tool.
• Going forward, Deutsche Bank say one option for the central bank would be to raise the amount of interest payments it makes to commercial lenders for their required reserves - which would encourage banks to park bigger amounts of lira at the monetary authority.