The Central Bank of the Republic of Turkey (CBRT) cuts policy rate by 100 basis points to 15.00%. USD/TRY has jumped to close to 11. Economists at TD Securities think that things will get worse before they get better but as policy is eventually tightened, USD/TRY can fall and settle in the low 10s/high 9s.
“The CBRT has cut the repo rate by 100bps to 15%, in line with consensus, but more aggressively than we had expected.”
“We still forecast USDTRY at 9.35 by year-end and 10.90 by end-2022. The short-term forecasts seem beyond what is reachable as moves occurred much faster than we had thought. But our forecast for the pair at 11.00 in Q2 2023, 12.90 by end-Q3 and then higher at 14.50 in 2024 and 17.00 in 2025 do justice to our long-held bearish view on the Turkish lira.”
“For the time being, we think USD/TRY will very soon break above the 11.00 handle and continue pressuring higher. This will give little options to the CBRT but to reverse monetary loosening. We think the Bank has no more than 4 weeks at its disposal.”
“When rate hikes kick in, USD/TRY can finally stabilize and start falling. This could still help TRY to settle in the low 10s or high 9s sometimes over the coming three months, under the premise that rates will have to be brought back up above the 20% mark.”
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