USD/TRY to climb to the 14.00 level until CBRT delivers a sizable policy rate hike – Credit Suisse

The spectacular rise of USD/TRY continues unabated. In order to reverse the weak TRY trend, economists at Credit Suisse think the Central Bank of the Republic of Turkey (CBRT) will need to deliver a sizable rate hike. Until then, they see scope for further USD/TRY strength to the 14.00 area.

Truly large policy rate hike to lower USD/TRY to the 11.00 area

“In order to stop the negative feedback loop, the central bank will need to hike the policy rate aggressively. At a minimum, USD/TRY stabilization will probably require a policy rate hike which is large enough to bring the policy rate roughly in line with the latest print for year-on-year inflation – i.e. a hike of at least 500bps. But in order to reverse the trend in USD/TRY, the central bank will most likely need to hike the policy rate much more aggressively (e.g. 1,000bps or more).”

“In the absence of a policy rate hike, a rally in USD/TRY to levels such as 14.00 still look within reach. By contrast, a truly large policy rate hike (e.g. 1,000bps) could lead to a drop in USD/TRY to the 11.00 area.”