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Investing.com - Goldman Sachs has revised its outlook on the Turkish lira, noting that while the currency continues to offer steady carry trade returns, its relative attractiveness has diminished ahead of expected central bank rate cuts.
The Turkish lira has been depreciating at a 1.5-2% monthly pace in recent months, keeping monthly total returns from short USD/TRY positions close to 1%, according to Goldman Sachs. This places rolling total returns near recent lows, excluding periods of high volatility.
Goldman Sachs economists expect Turkey’s central bank (TCMB) to cut rates by 350 basis points next week to 43%, though market consensus points to a smaller 250 basis point reduction. The bank has also updated its USD/TRY forecasts to 42, 44, and 48 for 3-, 6-, and 12-month horizons, respectively, compared to previous forecasts of 41, 43, and 45.
Political uncertainty remains elevated in Turkey with the delay of the court ruling on the CHP’s internal elections, a factor historically associated with domestic outflows and dollarization. Despite these concerns, Turkey’s reserves have continued rising steadily, with gross reserve assets now standing close to $170 billion, approximately $13 billion below their mid-March highs.
The country’s current account deficit narrowed sharply in May and should remain supported by favorable seasonality in coming months, which Goldman Sachs views as a positive development that reduces the risks of more volatile depreciation for the lira.
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