Turkey: Rising risks of capital controls - Danske Bank

The Turkish lira collapsed today. Analysts from Danske Bank point out that today’s President Erdoğan’s speech contained no hint of hikes by the Turkish central bank (TCMB). They do not fully exclude an option of a massive hike by the TCMB and believe that probability of capital controls has greatly increased.

Key Quotes: 

“The Turkish lira saw its own Black Friday as markets became more disappointed on President Erdoğan’s  speech at a rally. The speech was long-expected, and the disappointment amplified the move in the USD/TRY pair.”

“We will wait for the announcement of Turkey’s new five-year economic programme, which should be released in three weeks. In the meanwhile we emphasise that the risk of capital controls has increased on Erdoğan’s reluctance to support rate hikes by the TCMB and that these controls could be considered over the weekend or next week.”

“We see the possibility that Turkey could get FX funding from Russia. However, upcoming US sanctions against Russia bring more uncertainty.”