Lira at risk if Turkish MPC starts to ease policy

The recent appreciation of the Turkish lira has caused the central bank’s (CBRT’s) MPC to adopt a more dovish stance, with Governor Basci suggesting that measures might be taken this month to loosen monetary conditions. For our part, we think it would be more prudent for the CBRT to refrain from easing. Inflation is likely to remain well above target both this year and next, and the current account deficit is still large. As such, looser policy could make the lira more vulnerable to a fresh sell-off.