USD/TRY set to break to a new high later in the current quarter – Credit Suisse

Economists at Credit Suisse preview Thursday’s policy rate decision in Turkey. Markets expectations and recent USD/TRY price action suggest little scope for a large move in case the central bank keeps its policy rate on hold, but an initial spike in USD/TRY in case of a rate cut would be expected. They continue to think USD/TRY will break to a new high later in the second quarter.

Another policy rate decision, another test for the lira

“USD/TRY is unlikely to react much if the central bank stays on hold on Thursday. Conversely, we think investors will be surprised in case of a policy rate cut, even a small one (e.g. 100bps). In that case, USD/TRY is likely to spike, at least initially.”

“The lira is currently highly sensitive to foreign outflows, and this seems in turn to reflect the fact that the current account deficit remains relatively large.”

“We stick to the view that the risk to USD/TRY is skewed towards the upside. We continue to target a break in USD/TRY to levels above the all-time high of 8.58 later in the current quarter.” 

“A meaningful break in USD/TRY below 8.00 does not seem on the cards. Our view is based on the idea that investors are going to remain sceptical about the willingness of the central bank to control inflation in a structural and persistent way even if it stays on hold.”