The lira exchange rate has temporarily stabilised after the government and central bank launched rescue measures. After a brief pause, economists at Commerzbank anticipate the next big move in USD/TRY.

Next big move around the corner

“We think that the significant rise of long-term inflation expectations over the past month, relative to the unchanging central bank rate, has opened the door for the next big decline in coming months. Already there are media reports that state banks and other institutions are having to sell substantial precious FX to prop up the lira – this is never a good sign.”

“We anticipate pressure to return to the exchange rate over the coming two quarters, which will likely create more stress for the financial system and the central bank, ultimately forcing at least an interim reversal via emergency rate hikes.” 

“Rate hikes by CBT under the current policy framework will not be credible and the lira will likely establish a renewed depreciation path through 2023. Precisely when and how this policy experiment will be abandoned remains completely unclear.”