President Erdoğan’s personal preference for low interest rates has caused severe damage to the Turkish economy. Economists at Danske Bank discuss TRY's outlook.

Fixing the economy with only bad options on the table

President Erdoğan’s new economic team has started monetary policy normalisation. However, reversing the course without causing more pain is all but easy, as imbalances in the economy have been building up for a while. 

We expect the CBRT to gradually hike the policy rate to 25%, but at a pace insufficient to bring the real rate into the positive territory, particularly as recent TRY depreciation is expected to fuel inflation going forward. 

Credit demand is expected to remain elevated, maintaining pressure on current account and Lira.