Turkish Lira: Further depreciation seen against US Dollar – Commerzbank

Commerzbank FX analyst Tatha Ghose highlights persistent inflation pressures and renewed current account deterioration as key drivers for continued weakness in the Turkish Lira against the Dollar. The bank’s forecasts show USD/TRY rising from 48.00 in September 2026 to 57.00 by December 2027, reflecting expectations of ongoing depreciation despite tight monetary policy and heavy FX intervention.

Lira on clear weakening trajectory

"Turkey’s reliance on energy imports and its deep trade and financial linkages to the Middle East create a problematic situation and exacerbating pre-existing balance of payments vulnerabilities. The central bank’s tight monetary policy has not solved the inflation problem yet. We see USD/TRY rising significantly further by the end of the year."

"In other words, the latest seasonally-adjusted month-on-month CPI increase is not encouraging at all. While officials maintain an optimistic inflation target of 24% for end-2026, the actual year-end forecast had to be expectedly revised up in the Q3 Inflation Report to 28%. While at the same time, the 2027 forecast is maintained at 15% – a familiar pattern of beginning the year with a forecast which claims to move towards target, then revising it progressively away as the timeframe gets closer and the outcome becomes unbelievable."

"This puts CBT in a bind. The policy rate is still 37.0%, but since the Iran shock CBT has kept the weekly repo window largely closed, pushing funding towards the 40.0% overnight lending facility. If CBT were to restart one-week repo funding, as CBT governor Fatih Karahan hinted at during his Q3 Inflation Report presentation, this would mechanically lower the effective funding cost – in practice, tantamount to a rate cut."

"The lira’s managed decline consistently required heavy intervention from the central bank, and the cost of this defence was rapidly becoming unsustainable. Most of the international reserve gain which policymakers highlighted in the media earlier this year was on account of the rising gold price. FX reserves were not increasing at all. Net FX reserves excluding swaps are still modest but the central bank and state banks bear a heavy burden of using FX interventions to smooth currency depreciation."

"Turkey’s current account, after improving during 2024-25, had begun to re-widen since a few quarters ago even before the war started: in our view, this was driven by the real interest rate dropping too soon (via rate cuts) even before the high interest rates had time to dampen demand and rebalance the economy. The latest trade and survey evidence do not ease these concerns: the trade deficit widened both in June and July; preliminary data showed that the deficit worsened by 14%y/y in July because of faster import growth than export growth; the deficit is running at 6% of GDP in recent months."