Goldman Sachs says Turkish lira ‘back in game’

US-based investment company says Türkiye’s normalization process continue

The Turkish lira, thanks to Turkiye’s recent moves in the economy, turned back in the game, US-based investment firm Goldman Sachs stated.

According to a statement from the firm on Thursday, “Turkey’s accelerated path towards rate normalization continued last week, with another large hike taking the policy rate to 30%.”

The Central Bank of the Republic of Türkiye has increased its policy rate from 8.5% to 30% in four meetings since June gradually.

“The recent increase in policy rates suggests that deposit rates are likely to increase further, and while implementation risks clearly remain, the recent articulation and support of a positive real rate strategy – in sharp contrast to previous years – suggest that it may be possible to beat the FX depreciation reflected in forward pricing again, implying that the Lira carry trade is back,” Goldman Sachs noted.

Recalling that the normalization process in the Turkish economy began after the election in May 2023, it noted: “The forward guidance noted that monetary tightening will be strengthened further and recent comments by Finance Minister (Mehmet) Simsek suggest there is a clear focus on achieving ex-ante positive real rates and a preference for this adjustment to take place by year-end.”

Touching on inflation, the firm’s report said inflation expectations,due to recent increases, could tick up, adding:

“Judging by our economists’ 1-year-ahead inflation forecasts, a policy rate of ~40% or higher by year-end would bring Turkey’s real rates into positive territory.”


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