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Analysts at Danske Bank look for the USD/TRY to trade at 5.90 in 3 months, at 6.10 in 6 and at 6.20 in a year. Regarding the Turkish economy, they expect more support will come from advancing monetary easing and exports on a weak TRY. They see 2019 GDP to contract 1.6% y/y and expand 1.7% y/y in 2020 and 2.6% y/y in 2021.

Key Quotes:  

“Turkey’s central bank (TCMB) continued its sharp cuts in Q3 19, lowering the key rate by 325bp to 16.50% as inflation continued to fall. There has been a clear shift in the TCMB’s stance after a change in governor earlier in 2019. We expect inflation will continue to decrease slowly, staying in double-digit territory through H2 19. However, we expect more cuts by the TCMB in Q4 19, as there is still room for a positive real rate and the Turkish economy badly needs monetary stimulus on global monetary easing.”

“The TRY has stabilised on continuing global monetary easing, while quick monetary easing by the TCMB has, not surprisingly, hit the TRY. Decelerating inflation and a dovish central bank fuel our expectations of economic stabilisation and growth in 2020.”

“Major downside risks to our TRY forecasts include a hawkish Fed, renewed political pressure on the TCMB, further escalation of the trade war and geopolitical confrontation with the US on Russia’s air defence system. A possible oil price spike on geopolitics we expect would weigh on the TRY further.”