Turkey: Weak prospects for TRY long-term - Danske Bank

According to analysts from Danske Bank, the prospects for the Turkish Lira are weak in the long-term despite economic growth. 

Key Quotes: 

“Turkey’s economic growth continues to deliver solid figures, though slowing down to 7.3% y/y in Q4 18 from hyper-strong 11.3% y/y expansion in Q3 18.”

“We expect 2018 GDP to grow to 3.5% y/y, as a high base effect will keep the expansion figures lower and the central bank is likely to remain more hawkish than we expected previously. We expect 2019 GDP growth to slow down to 3.0% y/y.”

“In March 2018, Turkey’s central bank (the TCMB) left its benchmark repo rate unchanged at 8.00% as we and Bloomberg consensus expected. Inflation remains in double-digit territory, not far from a multi-year high, and another significant concern that weakens the TRY. We have seen renewed pressure on the central bank by the
President Recep Tayyip Erdoğan, who has recently announced that high rates are a source of ‘every evil in an economy’.”

“We continue to see weak prospects for the TRY in the long term, as current commodity prices weigh on the current account deficit and a hawkish Fed would put pressure on FX exposure of Turkish corporations. We remain cautious in the short- to medium-term as geopolitical woes are likely to add volatility to the pair.”

“Downside risks to our TRY forecasts are again geopolitical, if the confrontation with the US escalates. The TCMB’s easing on political pressure and improving macro factors also present downside risks to our TRY forecasts. Fed monetary tightening is the general EM downside risk for the TRY.”