USD/TRY: Inappropriate policy continues to pose downside risks for the lira – MUFG

During August, the Turkish lira weakened against the US dollar from 17.92 to 18.18. In the view of economists at MUFG Bank, risks remain heavily tilted to the downside for the TRY.

Turkey’s weak economic fundamentals still favour further lira weakness

“Turkey’s economy appears to be overheating with domestic demand still robust, the trade balance widening sharply and very elevated inflation.” 

“The CBRT’s decision to lower rates will further undermine confidence in domestic policy settings and in the lira.” 

“The policy rate in Turkey now appears even more inappropriate. After adjusting for inflation of 79.6% in July, the real policy rate has fallen even deeper into negative territory. It should keep downward pressure on the lira.”