Turkey: lira still vulnerable to swings in risk appetite

The improvement in Turkey’s current account position means the lira no longer looks fundamentally misaligned, but the recent period of stability won’t last. While a repeat of last year’s currency crisis is unlikely, the lira will depreciate and it remains susceptible to a fresh bout of global risk aversion. This is a key reason why we think that interest rates won’t be lowered as far as the markets are pricing in.