USD/TRY: The risk of another TRY crisis is decreasing on a macrofundamental basis - Danske Bank

Analysts at Danske Bank, forecast that USD/TRY will trade at 5.90 in 3M, 6.10 in 6M and at 6.30 in 12M. Downside risks to their forecasts are geopolitical and macro-related. 

Key Quotes: 

“We expect 2019 GDP to contract 2.0% y/y (previously we expected 1.1% y/y growth) and 2020 GDP to expand 1.7% y/y, versus our previous expectation of 2.1%.”

“Turkey’s central bank (TCMB) kept the one-week repo rate at 24% in June 2019. After falling fairly strongly, CPI inflation has stabilised slightly under 20%, due partly to the pick-up in energy prices. Global monetary easing has opened the door for a 100bp cut in July 2019, we believe.”

“The TRY is stabilising on a global turn in monetary easing, while the lower oil price could wipe away the extra burden on Turkey’s external position. However, domestic risk has not disappeared. Large FX debt redemptions by the Turkish private sector and expected rate cuts are set to weigh on the TRY in 2019 and 2020.”

“If the confrontation with the US escalates, e.g. on the S-400 anti-aircraft weapon system deliveries by Russia. The TCMB’s excessive monetary easing, driven by political pressure and worsening macro factors, also presents downside risks to our TRY forecasts. Fed monetary dovishness is a positive factor for TRY’s path.”