USD/TRY: Lira weakness to accelerate if CBRT lowers rates prematurely – MUFG

During June the Turkish lira weakened against the US dollar from 8.5607 to 8.6933. In the opinion of economists at MUFG Bank, the weaker lira trend is set to remain in place.

Renewed selling pressure for the lira

“It would still be premature for the CBRT to begin lowering rates and even more risky now that the Fed has adopted a more hawkish policy stance.” 

“The CBRT also attempted to regain investor confidence in the lira by announcing that it is in talks to secure currency swap agreements with four other countries, and is close to a deal with two of them. While the details of the other potential currency swap deals have not yet been made public, we doubt that they will significantly ease investor concerns over Turkey’s lack of FX reserves.”

“Risks still remain skewed to the downside for the lira with weakness likely to accelerate when the CBRT begins to lower rates later this year.”