Goldman Sachs:  TL set to drop further

Foreign exchange forecasters at Goldman Sachs have revised higher their US Dollar to Turkish Lira’s (USDTRY) exchange rate forecasts to 28, 29 and 30 for the three, six, and twelve-month views.


At the time of writing, the current USD/TRY exchange rate is 26.04


The Central Bank of the Republic of Turkey’s (TCMB) decision to hike the one-week repo rate from 8.50% to 15.00%, marked a significant shift in monetary policy.


“This was the first hike since early 2021: that hike led to an abrupt change in TCMB leadership at that time, so this was clearly a big deal for the central bank and unlike in 2021, President Erdogan has publicly lent his support to a hike,” says Kamakshya Trivedi, Chief Currency and Emerging Markets Strategist at Goldman Sachs.


This marks an encouraging development, but Trivedi suggests that it falls short of what the market has been anticipating.

Indeed, consensus expectations anticipated a more aggressive rate hike to 20%.


Goldman Sachs’ economists further argued for a rise closer to 40%, aligning with the current deposit rates in the banking sector.


Trivedi indicates that the relatively conservative hike has led to a weakening of the Lira, now exceeding Goldman Sachs’ 6-month forecast.


“As a result and even though the Bank signalled that it would gradually tighten further, the Lira has weakened by close to 7% over the last couple of days and is now trading above our 6-month forecast of 25.00,” says Trivedi.


Despite this, he still advocates for further weakening of the Turkish Lira exchange rates.


This, he argues, would enable the establishment of a substantial undervaluation buffer that would support reserve rebuilding and reflect the persistently high inflation rate.


He further warns that if interest rates do not rise significantly, the foreign exchange is likely to shoulder a larger portion of the economic adjustment.


Seasonal tourism inflows over the summer may delay more significant currency movements, but at the risk of the new leadership failing to establish credibility.


“All in all, as we had noted before, a clear commitment to moving real rates to positive territory and a front-loaded FX adjustment are pre-requisites for the Lira to become an attractive carry trade in coming months,” says Trivedi.


However, the latest decision suggests that these prerequisites are not yet met.


In light of these considerations, Goldman Sachs has revised its USD/TRY forecasts upward to 28, 29 and 30 for the 3-, 6-, and 12-month horizons respectively, reflecting a more front-loaded path of adjustment.


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.