BBVA: Turkish lira to remain attractive through year-end
Spanish banking group BBVA expects the Turkish lira to maintain its appeal for carry trade investors through the end of the year, despite anticipated interest rate cuts.
Tufan Cömert, Director of Global Markets Strategy at BBVA, said the bank expects the Central Bank of the Republic of Türkiye (CBRT) to lower its policy rate by 100 basis points at its October meeting. BBVA cited the inflation outlook, slowing domestic demand, and tightening financial conditions as key reasons behind its rate-cut forecast.
According to BBVA's calculations, reducing the policy rate to 36% would lower the simple monthly interest return from 3.08% to 3%. Even if the CBRT delivers two 100-basis-point cuts in October and December, the gross monthly carry return is expected to remain around 2.9%. Cömert emphasized that the key factors determining the Turkish lira's attractiveness are not the rate cuts themselves, but keeping currency depreciation under control and maintaining positive real interest rates.
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