TRY: Attractive carry despite cutting cycle – ING

The Central Bank of Turkey (CBT) is scheduled to meet today, the first time since the start of the cutting cycle in December, ING’s FX analyst Frantisek Taborsky notes.

TRY continues to outperform other emerging market currencies

“We expect the CBT to continue cutting rates by another 250bp to 45% in line with the market consensus, given recent positive signals on the inflation outlook that are likely to further raise the level of real interest rates and lead to tighter financial conditions if the central bank does not act.”

“We anticipate that the forward guidance will stay consistent today, indicating a cautious and data-driven strategy for future rate cuts. The statement is expected to highlight a decrease in the underlying trend of monthly inflation in December, while also noting a temporary increase in January to manage inflation expectations and signal prudence.”

“In FX, the cutting cycle's start in December brought higher USD/TRY volatility but mainly to the downside with the CBT’s hawkish messages and narrower rate corridor. Since the beginning of the year, TRY has resumed its trend of nominal depreciation. Despite the onset of gradual FX carry deterioration, TRY continues to outperform other emerging market currencies and remains our favourite carry trade for this year.”