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Turkey carry trade holds as HSBC sees policy trumping politics
HSBC says Turkey's tight policy mix offsets political noise from local elections. Carry trade stays viable if the central bank holds rates at 50% into June.
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HSBC analysts argue that Turkey’s current policy mix is strong enough to absorb the drag from recent political turbulence. The assessment shifts the focus for USD/TRY traders back to the central bank’s rate path rather than the election calendar.
The political noise stems largely from the opposition’s strong showing in March’s local elections. That result raised questions about the durability of the administration’s economic pivot. HSBC counters that the tight monetary stance – the benchmark rate held at 50% since March – provides a credible anchor. The implication is that carry trades in the lira remain viable even when political headlines turn negative.
Policy Discipline Anchors Lira After Local Election Shock
Traders often assume that any sign of opposition strength will trigger a lira selloff. That assumption rests on a history of pre-election stimulus and post-election volatility. The HSBC view challenges the reflex. Since the central bank hiked aggressively through 2023 and 2024, the real policy rate turned positive for the first time in years. That gives Turkey a buffer that did not exist during previous political shocks.
The current account has also narrowed, reducing the external financing gap. Combined with tight liquidity management by the central bank, the lira has traded in a relatively narrow range against the dollar since the local elections. The currency has avoided the sharp depreciation that characterised earlier political cycles.