Analysts at Credit Suisse continue to have a bearish view of the Turkish lira. They anticipate that the exchange rate will remain volatile with the government experimenting with unconventional policies.
Key Quotes:
“The lira looks set to remain volatile as the government experiments with unconventional policies (e.g. FX-linked TRY deposits) while real rates have fallen far into negative territory.”
“Another phase of abnormal volatility, similar to the one in mid-December, cannot be ruled out.”
“Meanwhile, the risk of an early elections announcement in Q1 2022 seems low. But if it materialises anyway, it will probably pave the way for some respite for the lira.”
“The vulnerability of the lira is likely to lead markets to build up further risk-premium in front-end rates. We see scope for 1-year OIS rates to rise above their November high of 27.30% and possibly reach 30.00% later in Q1.”