Goldman Sachs: The Veneer Of Stability

Goldman Sachs notes that "apparent spot stability, however, is of a completely different nature than what was observed for much of November through February, when the market's confidence in an apparent turn towards more orthodox policy had supported the Lira. The latest personnel shifts at the TCMB have increased both our and investors' concerns of a premature cutting cycle and less orthodox monetary policy in Turkey despite the new TCMB's leadership stating that there will be no change in policy. This is reflected in the pricing of risk and will make it more difficult to cover Turkey's external financing requirement, which in our view will keep TRY under depreciation pressure. While interventions and dramatic increases in offshore rates may be able to keep the Lira stable for now, in the past this has served to delay, rather than reduce, left tail risks for the Lira. To reflect significant risks of a discontinuous move weaker over the next several months, we have shifted our USD/TRY forecasts to TRY9.00, TRY9.50 and TRY9.75 in 3, 6 and 12 months (from TRY7.00, TRY7.00, and TRY7.00 previously). While our 12-month forecasts are roughly in line with forward pricing, our USD/TRY forecasts are above the forwards over both the 3- and 6-month horizons. This reflects our view that, with limited reserves at their disposal and no credible monetary anchor, policymakers may soon run out of conventional options to combat currency weakness."