HSBC Revises Year-End USD/TRY Forecast to 44

Global banking giant HSBC has updated its outlook on the Turkish lira, revising its year-end USD/TRY forecast from 42 to 44. The adjustment reflects lower real interest rates and the fact that the lira has not achieved the level of real appreciation policymakers were hoping for.

The move underscores shifting dynamics in Turkey’s financial landscape, where policy easing and political uncertainties continue to weigh on investor sentiment.

Central Bank Policy and Currency Outlook

In its September 8 report, HSBC highlighted that the Central Bank of the Republic of Turkey (TCMB) continues to pursue a currency management strategy aimed at keeping the lira relatively stable. However, the bank noted that real appreciation targets have softened compared to last year.

HSBC strategist Murat Toprak wrote that with the start of the interest rate-cutting cycle, market outlook has become more uncertain. While disinflation has gained traction, looser financial conditions may introduce new risks for the lira.

Risks From Falling Deposit Rates

The report also drew attention to a decline in Turkish lira deposit interest rates. After a prolonged period of high yields, falling rates pose potential risks for investors and depositors.

HSBC warned that shrinking returns could trigger a gradual nominal depreciation of the lira. This adjustment, while not abrupt, could reflect both changing interest dynamics and lingering political uncertainties.

Political and Macroeconomic Factors Still in Play

HSBC acknowledged that political developments remain a persistent source of risk for the lira. Nevertheless, the bank expects macro-financial dynamics to support a relatively slow pace of depreciation by the end of 2025.

Despite concerns about currency weakness, HSBC underlined some positive progress:

• Turkey’s inflation path is now on a more sustainable downward trend.

• Financial stability risks have eased compared to previous years.

• External balances have shown signs of gradual improvement.

Balancing Risks and Opportunities

HSBC’s updated forecast reflects a cautious balance: acknowledging that Turkey’s disinflation efforts are working, but also recognizing that lower real interest rates and easing deposit yields could slow the pace of lira stabilization.

The bank’s analysts expect the lira’s depreciation to remain measured rather than sharp, particularly given the Central Bank’s active management of the currency.

Conclusion: Lira Stability Still Fragile

HSBC’s revision of its USD/TRY year-end forecast to 44 highlights ongoing challenges in Turkey’s macroeconomic adjustment. While inflation appears to be moderating and risks to financial stability are lower, the interplay of monetary easing, political factors, and currency management will determine how smoothly the lira’s path unfolds.

For investors, the message is clear: the Turkish lira’s depreciation may continue at a controlled pace, but volatility risks remain.v