The upheaval at Turkey’s central bank means that we now expect a 200bp interest rate cut next month followed by further aggressive easing in the second half of 2021. But the result is that inflation will stay high and the lira will fall much further, to 9.50/$ by year-end. The recent tightening of financial conditions means GDP growth will also now be weaker than we had previously expected. A severe balance of payments crisis that comes alongside major strains in the banking sector poses a key downside risk.
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