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Goldman: The risks of a "hard landing" in Turkey increased after the central surprise
Goldman Sachs (NYSE: GS) said the risk of the Turkish currency being exposed to sharp volatility and policymakers having to raise interest rates further has increased after the central bank kept its benchmark rate unchanged on Thursday.
"We believe that the risks of a sharp decline have increased following today's decision," said Murat Onur, an analyst at Goldman, referring to a possible scenario in which the central bank would delay tightening monetary policy, leading to more currency fluctuations and hence higher interest rates and a contraction in demand.
Goldman said levels of current account deficits and private sector debt repayment indicated continued displacement of money from the economy, adding that this was putting pressure on the currency and foreign exchange reserves.
"Policymakers will have to address these issues, and we still see that the interest rate will rise to 17 percent by the end of the year, but the timing will ultimately be dictated by the performance of the Turkish lira," Onur added.
