Turkish Lira To Sink 40 Per Cent By Third Quarter Of 2019, TD Securities

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The Toronto-based investment house has reiterated its call for a whopping 40 per cent depreciation to an all-time low of 8.90 per US dollar.

(Bloomberg) --TD Securities is defying market consensus to predict another crisis in Turkey’s lira.

This is in contrast to the increasingly sanguine view among traders, who see the currency drifting less than eight per cent weaker by the third quarter.

Cristian Maggio, the Head of Emerging-Market Strategy at TD, who initially pencilled in a sharp sell-off for the first quarter, says circumstances have convinced him this will still happen, though not before the second quarter. He maintains the central bank will have to raise rates by 400 basis points between June and July, in “stark contrast” to a market that expects cuts of some 650 basis points this year.

“The typical pattern is for the lira to go from one crisis to the next one, with stints of relative tranquillity in between,” Maggio said. “We think we currently are in one of those stints.”

Lira will come under pressure from a deepening economic contraction, upside risks to stubbornly high inflation, a wide balance-of-payments gap, a “bleak” outlook for the nation’s banks which face a mounting pile of bad loans, and a “de facto dollarization” of the economy.

The tumult over the summer whipped a third off the lira’s value and left borrowers who binged on foreign-currency debt over the years struggling to repay their loans.

The central bank responded by raising rates by 625 basis points in September, ushering in a period of calm in the currency. The lira has mostly traded in a narrow band between 5.15 and 5.35 per dollar all year.