Christian DiClementi, director of emerging-market debt at AllianceBernstein Holding LP, predicts that Turkish lira bonds will remain an unattractive investment for at least six months due to rising inflation and continued depreciation of the currency. In a phone interview from New York, DiClementi noted that the next two quarters will be challenging for Turkey, largely because of interest rate concerns. He added that political pressure for premature easing could exacerbate the situation, further weakening the lira.
Turkey’s inflation rate, while slowing to 52% year-on-year in August, remains over 10 times the central bank’s official target. Despite the 50% borrowing costs affecting the economy and cooling demand, the lira has already lost more than 13% of its value this year, making it one of the worst-performing emerging-market currencies outside of Latin America.
AllianceBernstein, which oversees $777 billion in assets, has only engaged in opportunistic trades of Turkish bonds this year, DiClementi said, emphasizing caution. “We believe inflation will continue to decline by year-end, but it’s unlikely the central bank will meet its target,” he explained. While officials aim to lower inflation to 38%, most economists forecast it closer to 42%, with DiClementi’s estimate falling between 45% and 49%.
DiClementi also projects that the first rate cuts may occur in early 2025, but the timing could be delayed until the second quarter if inflationary pressures persist. He remains cautious regarding Turkish local-currency bonds, citing ongoing currency risks. The Turkish lira has fluctuated sharply this year, despite $12 billion in foreign inflows into Turkish bonds.
DiClementi praised Turkey’s economic team for making significant progress in addressing inflation and stabilizing inflation expectations, but warned that achieving long-term goals will require even more effort in the coming months.