Goldman’s Latest Lira Revisions See More Gains and Rally Limits

ISTANBUL, TURKEY - NOVEMBER 09: A man exchanges money at a currency exchange shop on November 09, 2020 in Istanbul, Turkey. Finance Minister Berat Albayrak, the son-in-law of President Erdogan who has been in the role for five years, resigned Sunday citing health reasons. The country's currency has plunged 30 percent this year. After the resignation of Berat Albayrak, Turkish lira gained 3% against $ following the resignation. (Photo by Burak Kara/Getty Images)
ISTANBUL, TURKEY - NOVEMBER 09: A man exchanges money at a currency exchange shop on November 09, 2020 in Istanbul, Turkey. Finance Minister Berat Albayrak, the son-in-law of President Erdogan who has been in the role for five years, resigned Sunday citing health reasons. The country's currency has plunged 30 percent this year. After the resignation of Berat Albayrak, Turkish lira gained 3% against $ following the resignation. (Photo by Burak Kara/Getty Images)

(Bloomberg) -- Goldman Sachs Group Inc. revised its forecasts for the Turkish currency again, projecting further gains in the near term but warning that “the extent of lira appreciation may be limited.”

The central bank’s “shift to a hawkish bias should mean that currency markets continue to give the lira the benefit of doubt while the path to positive real policy rates is sustained,” Goldman analysts led by Zach Pandl said in a report to clients.

  • The U.S. bank now forecasts the lira’s exchange rate against the dollar at 7 in three months; that compares with its earlier three-month projection for 7.50
  • “An upward revision to the end-2021 inflation forecast of 9.4% year-on-year at the inflation briefing next week could provide a more realistic assessment of the outlook and potentially serve as a positive catalyst”
  • Goldman’s six-month and 12-month dollar/lira predictions are shifted to 7 and 7.50, from 7.75 and 8.00 previously
    • The lira is among the best performers in emerging markets against the dollar this year, closing on Friday at 7.4170
    • The Turkish currency has appreciated over 14% from a record low reached on Nov. 6, following President Recep Tayyip Erdogan’s shake-up of his economy team

Turkey’s central bank left its benchmark interest rate unchanged at 17% at the first monetary policy meeting of the year, pledging to keep it elevated for an “extended” period.

“Even if this shift to more orthodox monetary policy in Turkey is maintained, currency strength may ultimately be constrained by a necessary attempt at rebuilding FX reserves,” Goldman’s analysts said.