TRY: CBT continues cutting cycle while interest in FX continues unabated – ING

The central bank of Turkey will cut rates again by 250bp to 42.50% today, in line with market expectations. Monday's inflation confirmed the disinflationary trend with some downside surprise in February, ING's FX analyst Francesco Pesole notes.

USD/TRY to reach 38.10 by mid-year and 40.20 by the end of this year

"Overall, both food and non-food groups were drivers of the lower-than-expected inflation after a large upside surprise in January. The downtrend in annual inflation has also continued. In a move aligning with disinflation efforts, the Ministry of Treasury and Finance reversed the hospital copayment hike, contributing to a benign reading last month." 

"While there are pricing pressures due to the recovery in domestic demand, leading producers to pass cost increases to consumers, disinflation is expected to continue as the CBT has signalled it will maintain its tight stance despite the start of interest rate cuts, ongoing real TRY appreciation, and improvement in services inflation. We expect inflation to fall below 30% by the end of 2025. This backdrop is supportive for the CBT to continue with rate cuts, ending this year with 29.0% in our forecast."

"TRY continues to trend real appreciation and provides a fat carry despite the start of the CBT cutting cycle last December. Despite further rate cuts this year, TRY remains our favourite carry trade in the EM space. We expect USD/TRY to reach 38.10 by mid-year and 40.20 by the end of this year."