In the information note sent by JP Morgan to investors, assessments regarding developments in Turkey were also included.
Despite challenging macroeconomic conditions, the information note stated that the transition to orthodox policies is determined. It was noted that the Central Bank of the Republic of Turkey (CBRT) raised its policy interest rate to 25% by increasing it by 750 basis points in its latest meeting, contrary to market expectations of a 250 basis point increase, and these signals indicated that there was political support behind this decision.
The information note stated, "We are adding a small 'increase Turkish Lira weight' position to our model portfolio. In early July, we had taken long positions in Turkish Lira options. We now believe that the risk/reward balance favors direct Turkish Lira purchases."
Reserves seem to grow at a moderate pace
The information note mentioned that officials have introduced measures that will not allow the USD/TRY exchange rate to rise further, and it said:
"At the same time, our analysis shows that the Turkish Lira is cheap and competitive. Therefore, there is no need for an additional devaluation of the Turkish Lira. We believe that officials can maintain the USD/TRY exchange rate at a stable level without a loss in foreign exchange reserves; in fact, reserves seem to be growing at a moderate pace. This is because credit growth has declined to an annual rate of approximately 40-50% and has turned negative in real terms, and credit interest rates have increased significantly. With tourism revenues, a moderate current account surplus can be achieved in the August-October period. As a result, a stable USD/TRY exchange rate can be expected to yield positive returns."