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The Turkish lira has come under renewed pressure after Erdogan pointed to possible rate cuts ahead. While it may be a bit early,   economists at TD Securities stick to their call for a 100bps cut this month with a total easing of 350bps by August. This should keep USD/TRY well-supported in the weeks ahead toward the end-Q3 target of 8.85.

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“The TRY came under renewed pressure after President Erdogan alluded to the possibility of cutting rates around July-August. It’s not clear whether Erdogan has set this as a precise timing for the CBRT, or rather a ‘by this time’ suggestion.”  

“We are still holding on to our forecast for a first cut (-100bps) in June. Admittedly, this may be a little too early, but we also forecast cuts in July and August, with total easing of 350bps by August.”  

“While timing remains the most uncertain variable in the Turkish equation, Erdogan’s call for rate cuts doesn’t catch us too much by surprise. Even this is in line with our expectations given our USD/TRY forecasts of 8.50 in Q2 and 8.85 in Q3.”  

“Again, timing and magnitude of the FX moves are hard to grasp with perfection. But the direction of the pair and the events that can trigger the moves are more or less panning out as we have been calling them for some time now.”