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JP Morgan Take Profit on Long USD/TRY Forwards

TURKEY
  • JP Morgan take profits on their long 12-Jul-2023 USD/TRY forwards (entry: 21.11, entered on 12 January 2023).
  • The risk reward on holding USD/TRY longs has now shifted, JPM say, noting the collapse in credit growth which they say is the best predictor for lira pressure. Together with the approaching tourism season, this will likely result in modest CA surpluses in the coming months, they say.
  • Crucial is the expectation of some shift to orthodox policies, with JPM now projecting a hike to 25% at the CBRT policy meeting tomorrow. A bullish case vs. FX forwards would likely have to involve meaningful rate hikes, including guidance that further tightening is on the cards, a program to rebuild FX reserves and a gradual phase-out the FX protected scheme.
  • JPM believe a shift to more orthodox and transparent policy, where CBRT policy rate transmission is improved, would likely be necessary. A further step-back from CBRT bond purchases, allowing for bond yields to adjust to more fair levels (26-33%, in JPM’s estimates) would also help generate sustained FX inflows.
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