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Turkey faces “a high probability of a currency crisis in coming months”, Danske Bank said on April 28.
The Turkish central bank has this week once more been burning through its FX reserves attempting to stop the Turkish lira (TRY) sliding beyond the psychologically important 7-to-the-dollar threshold. In Turkey’s currency crisis of August 2018, the lira hit an all-time weak rate of 7.23.
In a note Danske Bank said: “The best way to ensure a stable currency is to aim for CPI stabilisation in the first part of a recession; this is, in turn, vital for the central bank in order to maintain financial stability.”
It added: “Only after a stable inflation path is ensured, lowering interest rates is a viable path. It goes without saying that the current Turkish path looks very unstable and we see a high probability of a currency crisis in coming months.
“While we may well end the year with USD/TRY in the low-to-mid 7s, overshooting near-term seems highly likely right now.”
By the end of April 29, the lira was trading at around 6.95 to the dollar.
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