Commerzbank analyst Tatha Ghose stated that the Turkish central bank's recent decision to leave monetary policy unchanged has led to the materialization of their worst-case scenario for the Turkish lira. Instead of raising interest rates, the central bank opted to rely on foreign exchange intervention and ad hoc liquidity tightening, arguing that fundamental improvements were ongoing and that recent geopolitical developments should be monitored but not acted upon aggressively [1].
Ghose highlighted several concerning trends: underlying disinflation has stalled, inflation expectations are rising, foreign reserves are being depleted, and market skepticism is increasing [1]. He noted that core inflation momentum remains too high and that the improvement in Turkey's current account has started to reverse due to premature policy easing. In this context, ongoing geopolitical tensions are seen as exacerbating an already weakening economic framework rather than introducing new problems [1].
Commerzbank now forecasts the USD/TRY exchange rate to reach 55.0 by the end of the year, which is higher than the market consensus of around 52.0. The annualized rate of lira depreciation since the beginning of April is calculated at 47% [1]. The bank expects renewed pressure on the lira and a more noticeable rate of depreciation in the coming months [1].
CONCLUSION
Commerzbank's analysis points to significant downside risks for the Turkish lira due to the central bank's reluctance to tighten policy. With reserves depleting and inflation expectations rising, the lira is expected to face continued depreciation, potentially reaching 55.0 against the USD by year-end.