HSBC Changed Its Dollar/TL Forecast Downward

HSBC changed its dollar/TL forecast downward. The bank revised its year-end dollar forecast from 7.10 to 6.50.

HSBC dropped its year-end USD/TL forecast from 7.10 to 6.50, citing the decline in current account deficit and the slowdown in dollarization trend. HSBC, tight monetary policy stance of the Central Bank of the Republic of Turkey (CBRT), the decrease in the current account deficit, the slowdown in the dollarization trend of the locals, and the increase in foreigners' appetite for lira. In the evaluation made by the institution, following was stated, “Reversal of dollarization and capital flows may open the door for the Central Bank to strengthen its reserves. In our opinion, a transparent and appropriate foreign exchange purchase program will not affect the TL.” According to HSBC, a possible foreign exchange program may even be positive for the Turkish lira as it will reduce macro and financial risks.   CBRT Continues Its Messages The Central Bank of the Republic of Turkey administration gave messages about reserve accumulation and foreign exchange buying programs in its meeting with economists. During the meeting, which stated that the lagged effects of the exchange rate will decrease over time, the following statements were made: “With the stabilization of capital inflows and the reversal of the dollarization trend of domestic residents, we will increase our reserves through foreign exchange purchase auctions. When the conditions are met, we will share our plan for this with the public in a clear and transparent manner. We believe that the participation of all stakeholders, coordination and a holistic approach in the disinflation and price stability process are necessary.” In addition, the statement included the following: “The predictability and tight stance will contribute to the declining trend of inflation, the decrease in the country's risk premium, the encouragement of TL savings, the start of reverse currency substitution, the increasing trend of reserves and the permanent decline in financing costs.”