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Goldman Sachs Say Rate Hike Makes Lira More Attractive

TURKEY
  • Goldman Sachs say they have been arguing that a clear commitment to moving real rates to positive territory is a pre-requisite for the Lira to become an attractive carry trade and that today’s decision is certainly a more forceful step in that direction.
  • That said, to proxy for the tightness of domestic financial conditions, Goldman Sachs remain more focused on deposit rates rather than the repo rate – and these have recently fallen. They say they are likely to rise again following today’s hike and the introduction of new conversion targets from FX-protected to conventional TRY deposits.
  • Goldman Sachs say they have started to see the first signs of tighter policy working through the system in the June Balance of Payments data with a large improvement in the current account, which should ease pressures on FX. However, risks remain as a number of macroprudential measures are still to be unwound and inflation remains elevated, they say.
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