ING analysts Muhammet Mercan, Frantisek Taborsky and James Wilson say normalising liquidity and a lower effective funding rate have pushed market pricing closer to their Central Bank of Turkey rate view for 2026. They highlight limited foreign inflows into TurkGBs and see USD/TRY at 52 by year-end and 63 by end-2027 as reserves recover.
Lira outlook steady with carry support
“The Central Bank of the Republic of Türkiye (CBRT) has lowered the effective funding rate from 40% to 37%, citing easing inflation risks, weaker domestic demand, and improving monetary transmission. Growth is slowing, inflation should fall below 30% this year, reserves have markedly recovered, and the CBT has resumed asset purchases while markets increasingly anticipate future rate cuts.”
“Following the normalisation of liquidity conditions, the decline in the effective funding rate from 40% to 37%, and the easing of upside inflation risks, market pricing has gradually turned more dovish and moved closer to our forecast for this year. The CBT rate is now priced at 34.50% for year-end.”
“However, the market remains sceptical that the central bank can sustain easing next year, pricing in only around 100bp of cuts. We see scope for further repricing if disinflation continues in this part of the curve. Meanwhile, foreign inflows into TurkGBs remain limited, and the Ministry of Finance has completed about two-thirds of this years issuance. A meaningful improvement in duration would probably require a significant de-escalation in the US-Iran conflict.”
“In FX, the outlook is broadly unchanged. As sentiment improves, the lira is typically the first market segment to attract returning investors. Long TRY positioning has already recovered to levels seen before the US-Iran conflict, despite the CBTs unexpectedly dovish stance in August and the prospect of an imminent restart of the easing cycle.”
“Meanwhile, the continued recovery in central bank FX reserves should help sustain investor interest in the TRY carry trade. We forecast USD/TRY at 52 by year-end and 63 by the end of next year.”