According to analysts at MUFG Bank, the Turkish lira will remain weak against the US dollar during the first half of the year. They forecast USD/TRY at 14.500 by the first quarter and at 16.000 by the second quarter.

Key quotes:

“The lira has been notably more stable at the start of the new year with USD/TRY trading within a relatively narrow range between 12.803 and 13.940. It follows the extreme price action towards the end of last year when USD/TRY traded between 10.251 and 18.363 in December. However, we still believe that the current period of stability is built on shaky foundations.”

“There is no indication yet of shift to more orthodox policy settings in Turkey that would help to restore confidence in the lira on a more sustained basis. To the contrary, President Erdogan has recently called for interest rates to be lowered further. He still believes that lower interest rate will help to bring down inflation that is expected to have reached close to 50% in December. At the same time producer price inflation is expected to have reached close to 100%. The CBRT is still relatively optimistic that inflation will fall back sharply to around 23% by the end of this year.”

“Last month’s decision to transfer FX risk-linked to holding lira deposits from individuals to the government may help to temporarily slow the pace of dollarization in Turkey but does not solve the underlying problems and risks undermining the health of public finances which has been one of the solid domestic fundamentals. At the same time, policymakers in Turkey have stepped up intervention to provide more support the lira in the near-term.”

This article was originally published by Fxstreet.com.Read the original article here.

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