USD/TRY: Continued gradual depreciation of the Turkish lira expected – MUFG

The US dollar climbed in Turkey back to the 7.00 area; it is the highest level for USD/TRY since May. Analysts at MUFG Bank, continue to see a gradual TRY depreciation ahead, at least until credibility on stabilising inflation is achieved.

Key Quotes:

“With the aggressive push for credit into the real economy investors are also anticipating a deterioration in Turkey’s current account position. Turkey’s current account position turning to deficit with one of the largest negative real yields is a recipe for currency depreciation.”

“There are greater restrictions in place now on trading TRY and hence the scale of TRY turmoil witnessed in August 2018 is unlikely to be repeated. But the direction of travel is clear and we maintain out view of continued gradual TRY depreciation going forward, at least until credibility on stabilising inflation is achieved. There were comments made yesterday over possible changes to liquidity/credit policies that if made would be a start toward restoring confidence in the lira.”