USD/TRY: CBRT to cap gains below 15.00 while oil prices do not rally aggressively – Credit Suisse

Economists at Credit Suisse think a hawkish tilt at Thursday’s the Central Bank of the Republic of Turkey (CBRT) meeting is possible. They continue to expect the central bank to cap USD/TRY gains below 15.00 in the very short-run.

A hawkish surprise in the making?

“A policy rate hike, even a seemingly sizable hike of 500bps, will not change the fact that the policy rate in real terms is very far into negative territory. At the same time, a rate hike would, to some extent, create a sense that the central bank’s reaction function has changed. Putting the two together, with this possible but surprising outcome the lira would be likely to rally somewhat but probably not enough to take USD/TRY back to its pre-Russia-invasion levels (i.e. below 14.00) in a sustainable way.”

“While Brent oil prices sits near $100/bbl it seems to us reasonable to expect USD/TRY to stay below but close to the 15.00 mark. But if oil prices rise to, say, $120/bbl again – the central bank will likely see a need to allow USD/TRY to rise to a new (higher) range – perhaps 15.00-16.00.”