The Turkish lira came under further pressure after Erdogan signaled possible upcoming rate cuts. While it may be a bit early, economists at TD Securities are sticking to their call for a 100 basis point cut this month with total easing of 350 basis points by August. . This should keep USD / TRY well supported in the coming weeks towards the 8.85 target at the end of the third quarter.
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“The TRY came under further pressure after President Erdogan hinted at the possibility of cutting rates around July-August. It is not clear whether Erdogan defined this as a specific time for CBRT, or rather as a “by then” suggestion.
“We still maintain our forecast of a first decline (-100 bps) in June. Granted, it may be a bit too early, but we also expect declines in July and August, with full easing of 350bp by August.
“While timing remains the most uncertain variable in the Turkish equation, Erdogan’s call for rate cuts doesn’t take us too much by surprise. Even that is in line with our expectations given our USD / TRY forecast of 8.50 in the second quarter and 8.85 in the third quarter. ”
“Again, the timing and scale of FX moves are hard to grasp with perfection. But the direction of the pair and the events that can trigger the moves have been unfolding more or less as we’ve been calling them for some time now. “