BNP says short lira with 4.05/$ target

Turkey's central bank will need to raise interest rates by at least 200 basis points to arrest a decline in the lira, according to strategists at BNP Paribas.

BNP recommended that its clients be short on the lira, with a target of 4.05 per dollar, according to a report on Wednesday by strategists Piotr Chwiejczak, Sai Ulluri and Erkin Işık.

In Turkey, weekly realised returns have been negative since Sept. 15. Such an extended drawdown (consecutive week-on-week selloffs) points to stresses in the system that underpin our recommendationIn... In order to break the negative momentum, more than 200bp of tightening needs to be delivered through the repo rate or future CCY rates.

The lira slid to a new record low of 3.98 per dollar early Wednesday as investors worried the political tensions with the United States and the central bank's reluctance to hike rates, on the back of double-digit inflattion, would pressure the currency further. 

In contrast, there is a good chance that the South African rand will stabilize as future political events have been well discounted, BNP said.