Turkish Lira: Disinflation supports gradual TRY repricing – ING

Turkish Lira analysts from ING have noted that disinflation and the gradual repricing of the TRY are positive developments. Normalised liquidity and a lower effective funding rate have caused market pricing to move closer to the Turkish Central Bank's (CBRT) forecast for 2026. The analysts expect USD/TRY to reach 52 by year-end and 63 by end-2027, as reserves recover.

The CBRT has lowered the effective funding rate from 40% to 37% due to easing inflation risks, weaker domestic demand, and improved monetary transmission. Growth has slowed, inflation should fall below 30% this year, and reserves have substantially recovered. The CBRT has resumed asset purchases, and markets now anticipate future rate cuts.

While the central bank's ability to sustain easing next year is still uncertain, with only around 100 basis points of cuts priced in, further repricing is possible if disinflation persists. Limited foreign inflows into Turkish government bonds (TurkGBs) and the Ministry of Finance completing about two-thirds of this year's issuance suggest that achieving significant duration improvement would require a significant de-escalation in the US-Iran conflict.

FX markets remain largely unchanged; the lira is typically the first market segment to attract returning investors when sentiment improves. Long TRY positioning has already recovered to pre-conflict levels, despite the CBT's unexpectedly dovish stance in August and the prospect of an imminent easing cycle. The recovery in central bank FX reserves should help sustain interest in the TRY carry trade. ING forecasts USD/TRY at 52 by year-end and 63 by the end of next year.