TRY keeps the bearish view intact in the longer run – Danske Bank

Senior Economist at Danske Bank Vladimir Miklashevsky keeps the bearish view unchanged on the Turkish Lira.

Key Quotes

“Turkey’s central bank (TCMB) surprised the markets with a 625bp hike of the one-week repo rate to 24.00%, which moved USD/TRY to new lower levels and helped EM FX across the globe. We expected a 300bp hike and Bloomberg consensus anticipated a 325bp increase. In its most recent statement, the TCMB signalled that ‘if needed, further monetary tightening will be delivered’. Given the continuing acceleration in inflation (+6.62pp to 24.52% y/y in September) and risks of more weakening in the TRY, another hike is possible in Q4 18, as the real rate has become negative”.

“We maintain our USD/TRY forecast levels. Given that we expect more tightening fromthe TCMB (both implicitly and explicitly), we see only a moderate rise in the USD/TRY in the long term. A rate hike in Q4 18 would boost TRY’s short- and medium-term prospects. However, we continue to remain bearish on the TRY in the long term and forecast the USD/TRY at the following levels: 6.00 in 1M, 6.40 in 3M, 6.90 in 6M and 7.50 in 12M”.