Goldman Sees Weaker Lira, Warns on Risks of ‘Discontinuous Move’

(Bloomberg) --

Goldman Sachs Group Inc. predicted a deeper depreciation for the Turkish currency and warned that “with August illiquidity ahead of us, risks of another discontinuous move in local assets are rising.”

The lira is the world’s second-worst performer this month with a drop of over 4% against the dollar, extending its losses for the year to more than 18%. It closed just under 7.28 per dollar on Friday, recovering slightly after Turkish authorities announced measures to arrest its decline.

• Goldman’s USD/TRY forecasts raised to 7.75, 8 and 8.25 in 3, 6 and 12 months, versus 7, 7.50 and 8 previously
• “Over the short run, risks to USD/TRY are skewed to the upside, given rising foreign currency deposits locally and a backdrop that features a deteriorating inflation outlook, limited reserves, an external financing gap, and an unconventional policy mix that is running up against binding constraints,” Goldman analysts led by Zach Pandl said in a report
• Spillovers likely to be lower than in 2018, “but still a headwind” for EM high-yielders
• “Amid August illiquidity, a discontinuous move in the lira would still reverberate across EM HY markets as investors would likely worry about ‘the next domino to fall’ as a result of the COVID crisis”
• NOTE: Turkey’s Policy Shift Ends Turbulent Week for Its Currency
• NOTE: Turkey’s Perilous Game With Markets Reaches a Crossroads

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