Deutsche Bank includes pro-lira analysis in its latest note
In its note on the Turkish lira, Deutsche Bank stated that carry trade transactions have returned and that additional interest rate hikes by the Central Bank of the Republic of Turkey (CBRT) in the coming period would create an extra positive environment for these transactions.
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Deutsche Bank, which adopted a positive approach toward the Turkish lira in September, included pro-lira analyses in its new note as well.
The note, prepared by a team including Deutsche Bank Economist Yiğit Onay, stated that carry trade transactions for the TL have returned.
The note indicated that while the dollar/TL exchange rate moved in line with futures contracts following the change in approach in September, it has remained below this level in recent weeks. Deutsche Bank stated that one of the most important bullish signals here is the return of the search for carry returns.
The note recalled that these inflows were sufficient to keep the dollar/TL rate stable for six months in 2021, despite high inflation, alongside an improving current account balance.
Deutsche Bank economists stated that it is difficult to measure the exact scale of the inflows, but that three indicators stand out in this context. The first of these is the significant improvement in the CBRT's net reserves in recent weeks.
The economists pointed out that if the CBRT had not chosen to increase its net reserves, the nominal dollar/TL exchange rate would likely be slightly below current levels.
The second indicator regarding the inflows is that the banks' off-balance-sheet foreign exchange position, adjusted for CBRT swaps, has shown a significant jump historically associated with carry inflows. Finally, there is the increase in the volume of banks' foreign exchange swap transactions.