While the French Presidential elections are still taking the major attention from markets, central banks are also coming back. The Turkish Central Bank will likely announce early this afternoon that it will maintain its stance on the rates.
The Benchmark Repurchase Rate should be maintained at 8% to mitigate inflation risk. According to the national Turkish institution, the inflation rate climbed to 11.29 y/y from 10.13%. In addition, the Central Bank Governor Murat Cetinkaya is expected to have a current account deficit of 4% for 2017, which would mean that a recovery is actually happening. Currency-wise, the Turkish lira remains at an elevated level, although not weaker than the level of 3.87 liras at the end of January.
In our view, the geopolitical and political uncertainties are one of the greatest driver of the currency at the moment. President Erdogan won the constitutional referendum and this increases his power and he main remain in office until 2029. Diplomatic relations with the EU though are at a low point. We believe that USDTRY has some room to head even higher in the medium-term.
By Yann Quelenn