USD/TRY set for a break above the 8.58 all-time high in the second quarter – Credit Suisse

Economists at Credit Suisse argue that USD/TRY is unlikely to react much in case the central bank stays on hold this week. Overall, a break in USD/TRY to levels above the all-time-high of 8.58 is likely to happen in the second quarter of 2021. 

USD/TRY is unlikely to react much in case the central bank stays on hold

“The widely-shared investor expectation of a no-change outcome at tomorrow’s central bank meeting and the rather benign recent TRY-flow dynamics suggest to us that USD/TRY is unlikely to react much in case the central bank stays on hold on Thursday.”

“One risk scenario is a rate cut (even a relatively small one of 100bps). Another is a dovish statement that signals a desire on the part of the central bank to cut the policy rate in May. In either case, we could imagine an initial spike in USD/TRY being met by FX market intervention by state-owned banks. That intervention might in turn keep USD/TRY below 8.30 or so. However, such a scenario is likely to pave the way for more noticeable pressure on the lira as locals would become less willing to sell USD and foreign investors would be inclined to accelerate their cross-border outflows.”

“We still expect a break in USD/TRY at some point in the second quarter of 2021 to levels above the all-time high of 8.58. In the risk-scenario with a rate cut or dovish rhetoric coming out, such a break could materialize in the coming few weeks rather than the late part of the quarter.”