In our last post on the Turkish lira, we explained that we remain cautiously optimistic. But at the same time, our old USD/TRY forecast of 35.0 (for end-2024) now looks more accurate than our recently revised forecast of 34.5 (revised 21 September). The lira continues to follow a slow but steady depreciation path. The article in the above link discussed the fundamental topics surrounding the improving balance of payments, yet several remaining risks to the exchange rate, Commerzbank’s FX analyst Tatha Ghose notes.

USD/TRY to trade at 35.0 in the end of 2024

“Our emphasis today is that FX intervention seems to have made its way through the backdoor. As USD/TRY began to approach the psychological 35.0 threshold, its intraday trading pattern reverted back to the well-known one from the past where the exchange rate would go totally flat at certain levels, with almost no movement or volatility, then breach that level – one level at a time – seemingly defended by unseen forces at every step. This is what we seem to be witnessing again.”

“Turkey has a more complicated history of interventions and soft capital controls. Interventions destroy valuable FX reserves – either the central bank’s (CBT’s) or the state banks’ – and there would be no reason to incur such costs unless policymakers had a definite reason to fear accelerating depreciation going forward, which they want to pre-emptively defend against already.”

“This situation gives rise to the suspicion that CBT may, indeed, be ‘locked in’ to cutting its base rate on 26 December. As we concluded in the linked article, we do not think that it is time for that yet. And if the lira is having to be calmed down by interventions, that strongly suggests that we would see much greater volatility and FX depreciation if a rate cut is pushed through regardless.”