The Turkish Lira appears to be going exponential once again. Economists at Commerzbank have revised up their USD/TRY forecast path significantly.
Inflation-FX spiral may have restarted
We have revised up our USD/TRY forecast path significantly, with a target of 25.00 for end-2023 and 30.00 for end-2024.
Now that the exchange rate has started to depreciate once again, the FX pass-through to inflation will re-accelerate – the apparently falling inflation could begin to reverse.
The outlook for the real interest rate will deteriorate, which will further intensify exchange rate depreciation – this is the familiar inflation-FX spiral – the reason why we have significantly weakened our lira forecasts in the election aftermath.
Source: Commerzbank Research
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