Containing FX risks

Dünya Executive - - REPORT - Econom st, BofA ML

We continue to think that the Central Bank of Turkey will focus on foreign exchange stability. It reiterated its tightening bias and the goal of simplifica­tion in the upcoming period. Fiscal risks are building especially on short-term liquidity management given large financing needs but low buffers at the CBRT. Local investors appear concerned about the asset quality of banks given recent corporate restructur­ing, and potentiall­y follow up ones. We are neutral on the lira and rates and like hard currency gave fiscal space. President Erdogan’s call for a meeting with economic policymake­rs built expectatio­ns for tightening in monetary policy earlier than the scheduled date of June 7. The market is pricing about 200 basis points tightening by the CBRT. The global environmen­t will be the critical ingredient to the CBRT decision. We continue to think that FX stability will be the focus of the monetary authority. The foreign exchange deleveragi­ng framework for small and medium-sized borrowers kick-started earlier in May. (May 18)

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