USD/TRY volatile in the near term – Danske Bank

Vladimir Miklashevsky, Strategist at Danske Bank, assessed the prospects for the Turkish Lira in the next weeks.

Key Quotes

“Inflation remains sticky. High inflation and rising TRY volatility have erased hopes of near-term monetary easing and are keeping the central bank hawkish despite pressure from President Recep Tayyip Erdoğan. In March 2018, the Turkish central bank kept all rates unchanged. We expect the benchmark repo rate to remain unchanged in 2018, given the current inflation outlook and the TRY’s turbulence. Inflation pressure remains high through rising EUR/TRY”.

“We see more volatility in the TRY in the short term as the Fed is likely to hike in summer 2018, staying hawkish for the rest of 2018. We remain cautious in the medium to long term on pressure from a high oil price and widening current account deficit, which has hit its deepest level since late 2013. We raise our USD/TRY forecasts due to TRY’s vulnerability to shaky macro jeopardised by the high oil price and geopolitical risks: 4.10 (1M) versus 3.90 previously, 4.20 (3M) versus 3.95, 4.25 (6M) versus 4.00 and 4.30 (12M) versus 4.05”.