HSBC revises dollar/TL forecast upwards

British investment bank HSBC has revised its year-end dollar/TL forecast upwards. 

The assessment of the dollar/TL in the report published by HSBC yesterday is as follows:

"The depreciation of the TL in the recent period has been faster than we expected. Most of the macro variables related to foreign exchange have not changed much since the beginning of this year. However, inflation has remained higher, and the Central Bank has allowed more nominal depreciation of the TL than we anticipated.

The CBRT still continues to care about the exchange rate. Indeed, on February 22, the Central Bank made the exchange rate a direct policy focus. With the statement, 'The determination in the tight monetary stance will continue to contribute to the process of real appreciation of the Turkish lira, which is one of the fundamental elements of the fight against inflation,' the appreciation of the TL has become an intermediate target within the scope of inflation targeting.

Since there is no precedent for such statements (at least in this form), it is useful to look at what real exchange rate appreciation could mean for USD-TRY in the coming months.

In this note, we estimate the USD-TRY, assuming no real exchange rate appreciation, by using the CBRT's year-end inflation forecast for Turkey (36 percent) and HSBC Economics' US year-end inflation forecast. We repeat this study using the CBRT survey of expectations and HSBC Economics' forecasts. It shows different USD-TRY trajectories until the end of 2024 if exchange rate movements are equal to the expected change in the inflation differential during this period (i.e., if the real exchange rate remains constant). We also evaluate where the USD-TRY will trade by assuming different scenarios."

"WE ARE RAISING IT TO 36"

We assume that the most likely real TL appreciation among these is around 10 percent and take a rough average of three different inflation scenarios. In light of this analysis, we are raising our year-end USD-TRY forecast to 36.0 from 33.0.

We acknowledge that this study is a simplification of many moving parts in the TL's macro background. For example, inflation at the end of 2024 could be significantly higher than the CBRT's forecast. However, in this case, we assume that the Central Bank will tighten monetary policy further, which will offset some of the negative effects of high inflation on the exchange rate. Nevertheless, we believe this study provides a broad idea of how much the USD-TRY could rise."