Goldman Sachs Expects Turkish Lira to Drop to 28.00 against Dollar in 12 Months

Goldman Sachs revised its forecast for the Turkish lira in the wake of President Recep Tayyip Erdogan's government reshuffle, saying it now expects the currency to weaken to 28 against the dollar in 12 months from a previous forecast of 22.

Erdogan hinted on Saturday that his newly elected government would return to more traditional economic policies when he appointed Mehmet Simsek to his cabinet to address Turkey's cost of living crisis and other pressures.

“We believe it is a matter of time rather than whether the currency weakens significantly, with the possibility of a larger one-time adjustment increasing,” Wall Street bank analysts said in a note published after Erdogan announced his new team.

“We believe that the selection of Mehmet Şimşek as the new Minister of Treasury and Finance increases the possibility of monetary policy shifting towards a more conventional direction.”

The bank said it expects the lira to drop to 23.00, 25.00 and 28.00 per dollar in three, six and 12 months, respectively. This compares to previous forecasts of 19.00, 21.00 and 22.00 respectively.

Depending on the events, the 28.00 level could be reached in less than a year, analysts said. Likewise, a larger-than-expected rate adjustment could mean that the lira may need to weaken less than expected, they added.

The lira has lost more than 90% of its value over the past decade, as the economy has been in the grip of boom-and-bust cycles and rampant bouts of inflation that topped 40% in April while the key interest rate is currently fixed at 8.5%.