ING’s Frantisek Taborsky expects the Central Bank of Turkey (CBRT) to keep its policy rate at 37%, maintaining a tight stance and policy flexibility. He notes recent macroprudential tightening and stable FX have supported the Turkish Lira (TRY), but a widening current account deficit clouds the longer-term outlook. ING forecasts USD/TRY at 53.00 by year-end.

Tight policy meets longer term risks

"The Central Bank of Turkey is likely to leave rates unchanged at 37% today."

"Against this backdrop and considering the recent macroprudential tightening through reduced lending growth caps, along with contained retail foreign exchange demand, we expect the central bank to leave interest rates unchanged at today's MPC meeting."

"With the difficult disinflation story of the last few months and the CBT’s visible efforts to keep FX stable, it is clear that the current FX regime is here to stay."

"FX reserves remain high, and despite the thinning FX carry, TRY remains a popular trade in the EM space, which we believe will not change in the coming months."

"At the same time, the widening current account deficit clouds the longer horizon and poses a problem for CBT in the future."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)