ING analysts Muhammet Mercan, Frantisek Taborsky, and James Wilson report that the Turkish lira (TRY) is experiencing support from disinflation trends and a reduction in the Central Bank of the Republic of Türkiye's (CBRT) effective funding rate, which has been lowered from 40% to 37% due to easing inflation risks, weaker domestic demand, and improved monetary transmission [1]. The analysts note that growth is slowing, inflation is expected to fall below 30% this year, and central bank reserves have markedly recovered. The CBRT has also resumed asset purchases, and market pricing is now more closely aligned with ING's forecast for the central bank rate in 2026 [1].
Market expectations for the CBRT rate at year-end are now at 34.50%, reflecting a more dovish outlook. However, skepticism remains regarding the central bank's ability to sustain easing into next year, with markets pricing in only about 100 basis points of cuts. ING suggests that further repricing could occur if disinflation continues [1]. Foreign inflows into Turkish government bonds (TurkGBs) remain limited, and the Ministry of Finance has completed about two-thirds of this year's issuance. The analysts indicate that a significant improvement in bond duration would likely require a major de-escalation in the US-Iran conflict [1].
In the foreign exchange market, the outlook for the lira is described as broadly unchanged. As sentiment improves, the lira is typically the first segment to attract returning investors. Long TRY positioning has already recovered to pre-US-Iran conflict levels, despite the CBRT's unexpectedly dovish stance in August and the potential for an imminent restart of the easing cycle [1]. The ongoing recovery in central bank FX reserves is expected to help sustain investor interest in the TRY carry trade. ING forecasts USD/TRY at 52 by year-end and 63 by the end of next year [1].
CONCLUSION
ING analysts see the Turkish lira as supported by disinflation, lower funding rates, and recovering reserves, with market pricing turning more dovish. While skepticism remains about the sustainability of monetary easing, the lira's outlook is steady, and investor interest is expected to persist if current trends continue.