HSBC raises its dollar/TL forecast

While markets in Turkey are locked in the May 14 elections, post-election analysis continues to come from international organizations.

UK bank HSBC raised its dollar/TL forecast from 21 to 24 by the end of 2023, while raising its second-quarter expectation to 20 from 19.5 and its third-quarter expectation to 23 from 20.

In the note signed by Murat Toprak, currency strategist for the bank’s Central and Eastern Europe, Middle East and Africa region, it was noted that the elections to be held on May 14 may bring important changes to the long- and medium-term outlook. term of the TL. , noting that the TL is likely to depreciate regardless of the election outcome.

In the report, the highlighted challenges for the Turkish lira were listed as “high negative interest rates, high current account deficit, lack of stable capital flows, low foreign exchange reserves, and the risk to the sustainability of the liraization policy.” . In the report, it was noted that most of the key variables for TL have worsened since the beginning of the year.

TL OVERVALUATION

Noting that a higher dollar/TL move than previous projections was expected along with deteriorating TL fundamentals, the report noted that the TL overvaluation findings heightened this possibility.

The report stated that there is a new model characterized by the slow increase in the exchange rate since August 2022 and the suppression of historical volatility, and that this model will have consequences on the valuation of TL in a context of high inflation.

It was emphasized that despite the significant increase in inflation in Turkey since August last year, the 6.5 percent decline in the nominal effective exchange rate points to strong differences in the dynamics between the exchange rate and inflation.

In the report, “assuming the TL deviates from the current fair value range by 30-45%, the dollar/TL should rise to the 24-27 range. Taking TL’s weak fundamentals into account, we are revising our dollar/TL year-end forecast from 21 to 24.

STANDARD CHARTERED: ECONOMIC GROWTH WILL BE SUCCESSFUL

On the other hand, the British bank Standard Chartered included the analysis of Turkey in its global macro analysis report published for the second quarter of 2023.

The British Bank noted in the report that Turkey’s economic growth will remain under pressure despite the latest incentives.

The report mentioned that the earthquake, low external demand and the upcoming elections reduced the dynamism of economic activity this year; cut its forecast for economic growth from 3 percent to 2.5 percent.

INFLATION FORECAST

The report, which is expected to remain at 55 percent on average in 2023 despite the recent drop in inflation, indicated that the policy rate could decline by 50 basis points in the second quarter of 2023.

In the report, which is believed to be adhered to by the authorities’ new economic plan, the ‘Turkish Economic Model’, it is thought that the proximity of the elections will not bring about a change in the direction of policies, while policies oriented Growth is expected to continue if the AKP government remains in power after the elections.

“ELECTIONS MAY BE A TURNING POINT FOR Türkiye”

In the report, which pointed out that the May 14 elections could be a turning point for Turkey, it was stated that the elections would be decisive especially for the prospects of the LT, which has lost its value for a long time.

“The May elections will have a significant impact on the currency,” the report said. Against this backdrop, we expect USD/TL to rise faster than the future outlook.”

In addition to tourism revenues of $56 billion forecast for 2023, it was claimed that the post-election government may have to seek new external financial resources.

“THE DOLLAR/TL POSSIBLE TO BE AT LEVEL 36”

Sharing its targets for the exchange rate, the bank noted that the exchange rate would rise regardless of the change in government and said the increase would be limited if the opposition won.

“A move away from current unorthodox policies could attract enough portfolio flow to close the gap as the economy adjusts. In such a scenario, we may see USD/TL at the 20 level by the end of 2023.

On the other hand, we think that the continuation of current policies may cause TL to decline to end-2021 levels in real terms. In such a scenario, we believe that the dollar/TL can reach 36 by the end of 2023.