VIEW: Goldman Sachs note that..........>

TURKISH LIRA: VIEW: Goldman Sachs note that "during the coronacrisis Turkey's

large exposures to travel & tourism have meant that pressure on fiscal balances

induced by a domestic contraction have been paired with increased pressure on

external balances. The TCMB has continued to prioritize growth: it has cut the

policy rate by 150bp since Mar & nearly 16pp since Jul '19. While providing a

dovish impulse to growth, this has disincentivized foreign inflows by driving

the real rate into -ve territory and, with the private sector deleveraging, the

bank has also needed to step in to hold TRY steady. This growth-driven approach

has driven a rapid drawdown in FX reserves, and-absent a rise in real rates to

attract foreign inflows-is pushing the policy mix towards binding constraints.

Against this backdrop, the TCMB provided a rare hawkish surprise last week:

keeping the policy rate on hold, potentially ending its deep cutting cycle. Does

this signal a sustainable pivot away from policymakers' desire to support

growth, and towards addressing imbalances? Especially given that the TCMB's

inflation forecasts remain low, relative vs. consensus & our forecasts, our

economists caution re: over-interpreting. We remain cautious on TRY."