Turkish Lira: Further depreciation seen against US Dollar – Commerzbank
Commerzbank FX analyst Tatha Ghose highlights persistent inflation pressures and renewed current account deterioration as key drivers for continued weakness in the Turkish Lira against the Dollar.
Turkish Lira continues to depreciate against the US Dollar, according to Commerzbank FX analyst Tatha Ghose. Persistent inflation pressures and a deteriorating current account are the primary reasons for the lira's weakness. The bank forecasts USD/TRY will rise from 48.00 in September 2026 to 57.00 by December 2027, despite the central bank's tight monetary policy and heavy foreign exchange intervention.
Turkey's heavy reliance on energy imports and trade links with the Middle East exacerbates balance of payments vulnerabilities. Despite the central bank's attempts to control inflation, the latest seasonally-adjusted month-on-month CPI increase indicates a continued upward trend. Inflation targets for the end of 2026 were revised upward to 28% in the Q3 Inflation Report.
Turkey's central bank (CBT) has kept the weekly repo window largely closed, using the overnight lending facility instead. Restarting one-week repo funding could mechanically lower the effective funding cost, akin to a rate cut. The lira's decline has required significant central bank intervention, with the cost becoming unsustainable.
Most of the international reserve gain earlier this year was due to rising gold prices, not actual FX reserves. Turkey's current account has re-widened since a few quarters ago, driven by a premature drop in real interest rates. The latest trade and survey data show a widening trade deficit, with July's deficit increasing by 14% year-over-year due to faster import growth than export growth. The current account deficit is running at 6% of GDP in recent months.
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