USD/TRY to end the year at 6.25 – CE

The shift in policy making at Turkey’s central bank (CBRT) has supported a rally in local financial markets over the past few months and we think this has further to run. Economists at Capital Economics now expect the USD/TRY pair to end this year at 6.25 (previously 7.00).

Key quotes

“Moves by the government to ease geopolitical tensions are encouraging and may continue to reduce Turkey’s risk premium and we expect the central bank to keep monetary conditions tighter than most currently anticipate: our forecast is for the one-week repo rate to be left on hold throughout this year, whereas the consensus is for 375bp of rate cuts. If we’re right, that should help to reduce inflation and, in time, local currency bond yields, supporting the lira.”

“We think that the lira’s rally has further to run and we now expect it to end this year at 6.25 (previously 7.00).”