Unsecure politics weigh on TRY volatility, USD/TRY likely to trade at 3.25 by end-2016

The rebound in Turkey’s core-inflation continues to be gradual, therefore accelerated rate cuts would not underpin the Turkish lira. Unsecure politics would contribute to the volatility in the currency. However, since the U.S. Fed is still on a relatively moderate course, modest lira weakness in expected in the next 12 months, said Commerzbank in a research note.

As markets understand the wider risks, another lira crisis such as in 2014/15 to emerge is unlikely, even if individual events continue to shock us, added Commerzbank. On the positive side, decelerating GDP growth would also assist the current account. Hence forces are balanced about the currency.

“We see USD/TRY at 3.25 at end-2016 and at 3.40 at end- 2017”, noted Commerzbank.