Turkey's central bank, the CBRT, surprisingly cut the benchmark one-week repo rate by 100 bps to 13%. Economists at TD Securities believe that their current USD/TRY forecast of 19.00 by the end of the quarter is a fairly optimistic one.

Lira must fall if rates are not allowed to vent in the right direction

“The CBRT surprisingly cut the repo rate by 100 bps to 13%, defying the unanimous consensus expectation and our call for a hold today.”

“With this decision, the CBRT drops any residual pretense to be targeting inflation and reveals its overarching goal of supporting growth. With inflation at 80%, however, this recipe only spells disaster.”

“We still think that rates will need to be hiked – the only question is when? In the meantime, one conclusion looks inescapable – the lira must fall.”

“We continue to forecast USD/TRY at 19.00 by end of Q3, a forecast that looks increasingly optimistic given the circumstances.”