USD/TRY: Risks remain heavily tilted to the downside for the lira – MUFG
05.07.2022, 07:16

USD/TRY: Risks remain heavily tilted to the downside for the lira – MUFG

It has been another volatile month for the lira. The lira weakened throughout most of June hitting an intra-day high of 17.445 before staging a sharp rebound at the end of the month. Economists at MUFG Bank expect the TRY to suffer further downward pressure.

TRY weakness undermining confidence in Turkiye’s public finances

“Turkiye’s banking regulator will restrict commercial lira loans to corporate borrowers if they hold more than TRY15 million in foreign currencies and if the amount exceeds 10% of total assets or annual sales. It will encourage companies to reduce exposure to foreign assets/currencies in order to access new credit in lira and the flows will provide more support for the lira. However, the new policy measures alone will not be sufficient to trigger a more sustained reversal of the lira weakness.” 

“Turkiye will continue to run inappropriately loose monetary policy that has played a key role in undermining confidence in the lira. Turkiye has limited scope to support the lira through intervention reinforcing the bearish trend.”

“The Ukraine conflict has reinforced upside inflation risks, and at the same time is resulting in Turkiye recording wider current account deficits that increase downward pressure on the lira.”

 

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