USD/TRY: Turkish lira needs higher rates – Danske Bank

Just a small push by the Turkish Central Bank in the wrong direction is needed to lean into an outright currency crisis, according to economists at Danske Bank. USD/TRY is sitting at 6.9955.

Key quotes

“The best way to ensure a stable currency is to aim for CPI stabilisation in the first part of a recession; this is, in turn, vital for the central bank in order to maintain financial stability.” 

“Only after a stable inflation path is ensured, lowering interest rates is a viable path. It goes without saying that the current Turkish path looks very unstable and we see a high probability of a currency crisis in coming months.”

“While we may well end the year with USD/TRY in the low-to-mid 7s, overshooting near-term seems highly likely right now.”