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USD/TRY: Another emergency rate hike expected ahead of the election - Danske Bank

In light of recent event, analysts at Danske Bank raised their short-term forecast for USD/TRY but keep unchanged mid and long-term projections.

Key Quotes:

“The TRY has been hit by a combination of expansionary domestic policies, a structurally weak current account position and large corporate and household external FX position, coupled with uncertainty about independence of the central bank and challenging geopolitical environment.”

“Given the sour sentiment in emerging markets globally, a 300bp hike could be a temporary measure to halt TRY’s rapid depreciation. Thus, we do not exclude another tightening at the monetary policy meeting on 7 June. The USD/TRY rate is a very important ‘wealth’ indicator for ordinary Turkish voters and any approach of the currency pair to 5.00 would trigger another emergency rate hike ahead of the election, we believe similar to yesterday’s hike."

“While we have been bearish on the TRY for several years, in 2018 the currency was hit by a perfect storm, where both macro fundamentals and global environment, local politics and geopolitics, net reserves and portfolio flows stroke all together. While yesterday’s emergency hike brought the USD/TRY closer to its fair value, we raise our short-term forecast for the USD/TRY to 4.40 in 1M and 4.45 in 3M (4.25 and 4.25 previously), seeing another emergency hike ahead of the election. We keep our TRY forecast unchanged in mid- and long-term seeing USD/TRY at 4.35 in 6M and 4.50 in 12M as our mid- and longterm view on the USD stays bearish.”

 

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