Since our report published in March (TRY: sell until the normal service resumes), the panorama for the Turkish lira has not changed. If anything, the FX vulnerability has increased further. The Turkish central bank (CBRT) has kept the same unconventional monetary policy despite no sign of slowdown on the credit growth and a current account deficit reaching new historical highs. The CBRT is asking for more time, but time may be running out.
We retain our bearish view as the premium is too low for the macroeconomic risks and continue to believe that the risk of further and sharp weakening of the lira persists. There are hopes that after the general elections on June 12 the situation may change significantly and the combination of tighter monetary policy and fiscal policies would reduce the macroeconomic imbalances. Admittedly, the adoption of a tighter fiscal policy would reassure the markets and ease the pressures on the TRY. However, the timing is crucial and time plays against the TRY.
Click here to read the full report:
http://www.easyforexnews.net/uploads/2011/06/try-june-special.pdf
Murat Toprak
HSBC Global Research