S&P gives a figure: How many liras will the dollar be in 2025?

Standard & Poor's (S&P) stated that if Turkey continues its monetary and credit tightening measures, economic imbalances could be resolved and related risks for Turkish banks could decrease.

S&P GIVES A FIGURE

Estimating that nominal credit growth in Turkey will decline to approximately 40 percent in 2024, S&P projected that the current account deficit, which was 4.1 percent in 2023, will fall below 2 percent of GDP in 2024-2025.

Providing a dollar/TL forecast as well, S&P predicted that 1 dollar will reach the 43 TL level by the end of 2025.

"DOMESTIC DEMAND WILL BE CONSTRAINED"

According to the report in Ekonomim, S&P's assessment is as follows:

"With better coordination between monetary, fiscal, and income policies, a prolonged period of monetary tightening is expected to help the economy gradually rebalance.

The Central Bank of the Republic of Turkey (CBRT) has taken a series of measures to tighten credit conditions since June 2023. In addition to taking credit tightening measures and reducing existing liquidity in the system, it has raised the one-week repo rate from 8.5 percent to 50 percent in just 11 months. Despite these changes, domestic consumption has remained strong, supported by frequent increases in the minimum wage and the increased use of credit cards that benefit from interest rate caps. In our view, domestic demand is likely to be constrained in the future through further tightening of credit conditions and the implementation of policies aimed at bringing inflation under control (for example, by reaching less generous wage agreements)."

CREDIT GROWTH

We estimate that nominal credit growth will decline to approximately 40 percent in 2024, which points to a contraction in real terms. Success in reducing the inflation rate will help Turkey reduce its current account deficit and gradually rebuild usable foreign exchange reserves at the CBRT. We estimate that the current account deficit will fall from 4.1 percent in 2023 to below 2 percent of GDP in 2024-2025. However, it will take time to reduce inflation. We project that inflation in Turkey will remain high, averaging 55.8 percent in 2024 compared to 53.9 percent in 2023, before gradually falling to 27.3 percent in 2025.

CREDIT LOSS RISK FOR BANKS

In our view, the economic risk trend is turning positive due to the authorities' efforts to reduce inflation from its current high level. In our base scenario, we expect economic imbalances to be resolved, credit demand to decrease, real estate prices to moderate, and the economy to slow down, along with increasing portfolio inflows and a narrowing current account deficit. Consequently, we project that Turkish banks will face high but manageable credit losses.

However, macroeconomic conditions will remain tight for some time, which will erode asset quality for banks. We expect Turkey's economic activity to slow over the next two years, with real GDP growth falling from an average of 5 percent in 2022-2023 to 3 percent. Our base scenario assumes that the Turkish Lira (TL) will depreciate further by the end of 2025, with 1 dollar reaching 43 TL. This will erode the disposable income of Turkish borrowers and increase banks' impairment charges (excluding provision reversals) from an estimated 138 basis points in 2023 to approximately 170-190 basis points (bps) in 2024-2025."

News Source: 12punto