Today — on July 25, Central Bank of Turkey (“CBOT”) decreased the funding rate by 425 basis points.

This was 100% in line with my article on July 14 where I predicted the same rate.

Now the interesting thing is that the Turkish Lira (“TRY”) has appreciated after this development.

I attribute this mostly to factors unrelated to market dynamics and specificaly because of certain positions taken & defended for various reasons (of some not economy related).

Going forward, I believe this defence will be subdued and lifted due to (i) the unsustainability beyond a short period of time, (ii) non-economic factors behind this support waning and (iii) a period of relatively more loose monetary policy especially towards monetization of certain debt items.

Consequently today might be one of the last days of extra tight monetary policy (both in interest rates and also in monetary base) that supported a stronger than necessary TRY.