The Central Bank of the Republic of Turkey's (CBRT’s) unexpected move to cut rates by 100 bps in August triggered a new bout of lira weakness with USD/TRY breaching the 18 level. Economists at Danske Bank think twin deficits and global financial tightening could push USD/TRY towards 25 in 12 months. 

Burden on Turkey’s public finances will grow while growth momentum is slowing down

“We think the combination of global financial tightening, rising budget deficits and substantial refinancing needs at the private sector in the context of already-tight FX liquidity could push USD/TRY to 25 in the next 12M.”

“In the absence of a policy turnaround ahead of the June 2023 election, the burden on Turkey’s public finances will grow while growth momentum is slowing down.”

“In the longer term, Turkey’s economy could have a lot to gain (or lose) depending on how successfully it navigates the new geopolitical world order.”