Turkish lira may weaken to 8 per dollar, says Japan’s largest bank

Turkey’s lira may drop to 8 against the U.S. dollar in a year as the spread of the coronavirus causes a “sudden stop” in emerging markets and record capital outflows, said analysts at Mitsubishi UFJ Financial Group (MUFG), Japan’s largest bank.

While Turkey is benefitting from a decline in oil prices, economic growth is set to slow sharply, increasing the risks of a recession, with the tourism sector, worth about 12 percent of Turkey’s economic output, likely to be hit hard, MUFG said, according to global currency news and analysis website FX Street.

The lira, which has lost 11 percent of its value this year, equal to a decline in 2019, will probably fall to 7 per dollar by the end of the quarter, MUFG said.

The lira fell to as low as 6.71 per dollar on Thursday before recovering to trade up 0.3 percent at 6.67 against the U.S. currency by late morning local time.

MUFG also highlighted a central bank rate cut of 100 basis points, or 1 percentage point, last month, which took the benchmark lending rate to 9.75 percent, and its front-loaded government bond-buying programme announced this week.

“In these circumstances, we expect the lira to weaken further,” MUFG said.