Türkiye back in the game, says Goldman Sachs

ISTANBUL

Goldman Sachs has said that it may be possible to beat the FX depreciation reflected in forward pricing again and that the Turkish Lira carry trade is back, adding that real rates are on track to return to positive by the end of the year.

It noted in a report that the accelerated path towards rate normalization, which started after the May election, continued last week, with another large hike taking the policy rate to 30 percent.

The Central Bank lifted the policy rate - the one-week repo auction rate - by another 500 bps at its Monetary Policy Committee meeting on Sept. 21.

The Central Bank has hiked the policy rate by 2,150 basis points since June.

“The forward guidance noted that monetary tightening will be strengthened further, and recent comments by Finance Minister Şimşek suggest there is a clear focus on achieving ex-ante positive real rates and a preference for this adjustment to take place by year-end,” Goldman Sachs said.

The bank forecast the U.S. dollar/Turkish Lira at 28 and 29 in three months and six months, respectively, “stronger than the forwards, at approximately 30 and 33.”

The recent articulation and support of a positive real rate suggest that it may be possible to beat the FX depreciation reflected in forward pricing again, implying that the Lira carry trade is back in the fray, it said.

“Judging by our economists’ one-year-ahead inflation forecasts, a policy rate of around 40 percent or higher by year-end would bring Türkiye’s real rates into positive territory.”

The annual inflation rate climbed from 47.8 percent in July to 58.9 percent in August.

Meanwhile, international credit rating agency Standard & Poor's (S&P) revised Türkiye's outlook from "negative" to "stable" and affirmed its credit rating at B.

The agency said the stable outlook reflects "balanced risks" on Türkiye's creditworthiness after a return to orthodox monetary policy settings as the Central Bank raises interest rates.