HSBC raised its year-end dollar/TL expectation for 2023 from 27 to 29. The bank also set the dollar/TL expectation for the end of 2024 at 32.
HSBC has revised its dollar/TL expectations upward.
In the analysis sent to its customers regarding the Turkish lira, HSBC raised its dollar/TL expectation for 2023 from 27 to 29. For 2024, the dollar/TL expectation was set at 32.
The bank’s analysis highlighted concerns about the sharp expansion in the trade deficit, which could affect the macroeconomic balance, and the upward momentum in inflation.
HSBC pointed out that the external trade situation poses risks for the Turkish lira, as it indicates limited improvement in the current account balance, even during the tourism season. The analysis mentioned that the support from strong tourism revenues is expected to decline from November onwards, which adds further concerns from the foreign exchange perspective.
In its analysis, the bank also evaluated the latest inflation data. The upward surprise in July’s inflation was seen as an indication that inflation could potentially end the year above 60%. From a currency perspective, the bank pointed out that the recent inflation dynamics have two negative effects.
The first effect is on real interest rates and the risk of dollarization. The bank mentioned that the decline in deposit interest rates in recent weeks, coupled with the sharp acceleration in inflation, could exert pressure on the Turkish lira through reduced real interest rates.
Secondly, the analysis highlighted that while many parts of the world are experiencing disinflation, the persistently high inflation in Turkey mechanically creates upward pressure on the real effective exchange rate. The bank believes that this situation, especially during times when the dollar/TL exchange rate is quite stable, is not sustainable.
In summary, the bank’s analysis indicates that the recent inflation dynamics pose risks to the Turkish lira in terms of real interest rates and the possibility of an increase in dollarization. Additionally, the higher inflation in Turkey compared to other countries may lead to mechanical upward pressure on the real effective exchange rate, which could be problematic, especially during periods of exchange rate stability.