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Turkey’s lira (TRY) could see continued rally in the near-term, analysts at Goldman analysts led by Zach Pandl said in a report to clients, adding that the extent of currency’s appreciation may be limited. 

The investment bank now foresees lira rising to 7 per US dollar in three months versus the previous three-month forecast for 7.5 per US dollar, according to Bloomberg. 

Key quotes

The central bank’s “shift to a hawkish bias should mean that currency markets continue to give the lira the benefit of doubt while the path to positive real policy rates is sustained.

An upward revision to the end-2021 inflation forecast of 9.4% year-on-year at the inflation briefing next week could provide a more realistic assessment of the outlook and potentially serve as a positive catalyst.

Even if this shift to more orthodox monetary policy in Turkey is maintained, currency strength may ultimately be constrained by a necessary attempt at rebuilding FX reserves.

Lira is currently trading at 7.4146 per US dollar, having reached a low of 8.5777 on Nov. 6.