Capital Economics Outstanding dollar / TL forecasts and election forecasts for Turkey


Capital Economics shared the accelerated continuation of the recent TL depreciation and the interest rate scenario for the 2023 elections for Turkey.

Capital Economics, a London-based economic research and consultancy firm, strongly raised its dollar / TL forecast for the end of 2022 and announced the election, interest rate and dollar scenario for 2023.

In the analysis signed by James Reilly, the year-end forecast for 2022 for USD / TL has been raised from 18 to 24, and the electoral scenario has also been included.

In the analysis, which predicts that the exchange rate could reach 26 and beyond in the first half of 2023, the scenario was also conveyed that if the opposition wins the elections of June 2023 and therefore interest rates are increased significantly aggressive, the exchange rate decreased to 24 at the end of 2023 and to 20 at the end of 2024.


Reilly pointed out that the TL has depreciated 15 percent against the dollar since the beginning of May and pointed out that conditions are deteriorating and they expect the depreciation to accelerate.

The analysis showed that global financial conditions are tightening and external conditions for emerging markets have worsened in recent weeks and risk appetite has declined.


In the analysis, which notes that commodity prices are high and that the currencies of net importing countries such as Turkey continue to be under pressure, it is stated that, despite the worsening external environment, Turkey continues to implement policies unconventional under the ‘new economic model’, hence the quick value in TL It has been suggested that internal conditions were the determinant of the loss.

Recalling that President Erdoğan said he will continue to cut interest rates despite the current situation, the analysis included the expectation that inflation will remain high and that real interest rates will remain in a deep negative zone.

In the analysis, which noted that, despite the increase in the exchange rate, the real effective exchange rate increased due to high inflation, which weakened Turkey’s competitiveness and caused increased pressure on the foreign exchange balance. current accounts, it was highlighted that a decrease in the exchange rate may need the real exchange rate to reverse this situation.


Claiming that both worsening external conditions and the insistence on the new economic model have led to Turkey’s credit failure risk exceeding 2008 levels, and rising geopolitical risks have also raised the risk premium, Reilly said. stated that the conflict with the rest of NATO over the accession of Finland and Sweden and the conflict with Greece have highlighted tensions.

In the analysis, which includes the expectation that macroeconomic terrain will keep TL firmly under pressure, and which is called “We doubt future policies will do much to stop TL depreciation”, recent tightening measures have helped to reduce the demand and alleviate upward pressures on prices. However, such measures have been observed to lack effectiveness compared to traditional policy tools such as interest rate hikes.

Finally, the graph showing that Turkey’s gross foreign exchange reserves are also very low relative to its external financing needs was included in the analysis.



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