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Analysts at Danske Bank forecast that USD/TRY at 5.52, in a month, 5.55 in 3M, 5.70 in 6M and 6.00 in 12M. Vladimir Miklashevsky, Senior Economist/Trading Desk Strategist, warns that a sooner than expected rate cut would weigh on the Turkish lira.  

Key Quotes:  

“Turkey’s central bank (TCMB) kept the one-week repo rate at 24.00% in March 2019. Given the slowdown in inflation, which declined by under 20% y/y for the first time in many months, the central bank could start cutting soon in order to support the economy. However, we expect the easing to be cautious and moderate, as sharp moves could hit the TRY badly.”

“Recent net flows into Turkish bonds have been negative, while inflows into stocks have been positive on improved global emerging market sentiment. According to technical analysis (Relative Strength Index), USD/TRY has been oversold, meaning the TRY has more space to weaken in the near term.”

“Major downside risks to our TRY forecasts include more aggressive monetary easing than markets are pricing, the Fed becoming more hawkish and geopolitical confrontation with the US on Russian air defence system.”

We raise slightly our USD/TRY near-term outlook due to upcoming monetary easing in H1 19. We keep our medium- and longterm forecasts unchanged, as large FX debt redemptions by the Turkish private sector and further rate cuts are set to weigh on the TRY in 2019. Thus, we continue to remain bearish on the TRY in the long term.”