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SocGen Recommend Short USD/TRY Trade with 650bp Rate Hike Expected in June

TURKEY
  • SocGen expect that Simsek’s appointment will lead to an overhaul of monetary policy. They therefore expect the CBRT to tighten monetary policy in the coming months, starting with a 650bp hike to 15% at the meeting on 22 June. They then expect two consecutive 500bp increases in July and August, respectively, so that the repo rate reaches 25%.
  • SocGen expect TRY to strongly outperform the forwards in the near term and thus recommend going short USD/TRY at 20.88, targeting a 10% PnL over a three-month horizon with the stop-loss at USD/TRY 22.
  • They say the risk to the trade mainly stems from two possibilities: disappointments with regards to the return of policy orthodoxy and the new economic leadership weakening the currency to aid exports after all.
  • However, large uncertainties remain beyond the summer, SocGen say. Tourist revenues will dry up during the autumn and the country may see another push toward short-term economic boosts in the run-up to the local elections. SocGen expect TRY to weaken more boldly in 4Q23 and 1Q24 on the back of these factors.
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