Mikael Milhoj, Senior Analyst at Danske Bank, noted the fragile outlook around the Turkish currency for the next months.
“The New Year has not brought any relief for the TRY, which continues to weaken to record low levels against the USD, touching 3.79 already”.
“While President Erdogan continues to tighten his grip domestically, arresting the local media’s top executives and accelerating inflation is putting pressure on the economy, and markets are fearing that Turkey could lose its last investment grade status from Fitch on 27 January. If Fitch joins the other two rating agencies, it will add pressure on the banking sector and the TRY further”.
“The central bank is avoiding sudden movements in order to keep the government and business community happy, while a 50-100bp hike on 24 January would not come as a big surprise, in a bid to stop TRY’s depreciation. The central bank remains inert and it seems to be a decision in order to not irritate the government”.
“The decision to cut FX reserve requirements for local banks by 50bp did not help the TRY at the end of the trading day. Our current USD/TRY forecast 12M at 3.95 is starting to look TRY optimistic already”.