USD/TRY: Downside risks to TRY forecasts are still geopolitical - Danske Bank

According to analysts from Danske Bank,the risks of a recession in Turkey remain elevated. They forecast USD/TRY at 5.90 in 3M, 6.10 in 6M and 6.50 in 12M. 

Key Quotes: 

“We expect 2018 GDP to grow 3.5% y/y, cutting our 2019 GDP growth projection to 1.1% y/y (previously 1.8% y/y) and keeping our 2020 GDP growth projection at 2.1%. We see that risks of technical recession in 2019 remain elevated.”

“Turkey’s central bank (TCMB) stayed solid on 13 December, keeping the one-week repo rate at 24.00% as we expected, which moved the USD/TRY lower. As inflation started decelerating, falling to 21.6% y/y in November from its 15-year high of 25.2% in October 2018, the TCMB’s tone was slightly more dovish. We expect the TCMB to start to make cautious cuts in spring 2019, keeping real rates in positive territory though.”

“We see falling volatility in the TRY in the medium term, as the TCMB is returning to a conventional monetary policy framework. We remain cautious in the medium to long term on pressure from a high oil price, volatile portfolio flows and a wide current account deficit.”

“Downside risks to our TRY forecasts are still geopolitical, if the confrontation with the US escalates, e.g. on the S-400 anti-aircraft weapon system deliveries by Russia, and Turkey’s operations in Syria. The TCMB’s monetary easing, driven by political
pressure and worsening macro factors, also presents downside risks to our TRY forecasts. Fed monetary tightening is the general emerging market risk for the TRY.”