Turkish lira on the brink of recovery, according to Wells Fargo’s 2024 economic outlook report

Wells Fargo suggests significant change in Türkiye’s monetary and economic policy, potentially turning a corner for Turkish currency

A major change in Türkiye’s monetary and economic policy is suggested by a new research from Wells Fargo International Economics, which might be a turning point for the Turkish currency. President Erdogan has departed from his prior policy position by designating a technocratic team to supervise economic and monetary concerns. Foreign investors have returned to Turkish government bonds as a result of this change in monetary policy toward a more conventional approach, rekindling interest in Turkish assets.

According to the research from Wells Fargo, “New cabinet members have delivered significant monetary tightening in an effort to contain inflation, a stark shift in monetary policy ideology from what President Erdogan had put in place prior to elections.” President Erdogan’s backing for rate increases in addition to this tightening has improved the Turkish lira’s outlook. The research projects a lira resurgence in 2024, despite early pessimism, and sustained strength until early 2025.

According to the study, “progress has been made on both fronts” in terms of restoring the central bank’s credibility as an independent authority and reverting to an orthodox approach to monetary policy, underscoring the significance of the central bank’s independence. President Erdogan’s accommodative stance toward the recent municipal elections, in which his party lost in significant cities, is perceived as a favorable move for the currency. Accepting election outcomes without question indicates a dedication to democratic procedures and stability in the economy.

Additionally, favorable measures on Türkiye are anticipated from credit rating agencies soon, with numerous agencies likely to upgrade Türkiye. The tightening cycle of the central bank has been well received by the market, as seen by the significant lowering of credit default swap spreads on Turkish government debt.

The analysis ends with a positive forecast for the Turkish lira despite possible volatility, noting enhanced political dynamics, a reputable monetary authority, and democratic stability as factors boosting trust in the currency’s long-term strength. Although there may be occasional spikes in volatility, the lira is predicted to have a good overall trajectory, with a fall in the USD/TRY exchange rate by mid-2025.

Source: Newsroom