The U.S. dollar could reach as high as 3.40 against the Turkish lira if Turkish markets return to dollarization again, the U.S. based investment bank Morgan Stanley said.
The parity rate is currently being traded between 3.27 and 3.28 levels, reaching as high as 3.295 on Monday. The rate has been steadily increasing since increasing from mid-August, starting its rally near the 2.93 level.
Turkish business website Bloomberg HT reported that the report prepared by Morgan Stanley analysts Ercan Ergüzel and James Lord predicts that the decrease in Turkey's foreign currency deposits is not likely to last.
If foreign currency deposits and dollarization reach pre-July levels, Turkish lira could increase as high as 3.40, the report said. Reminding that foreign investors decreased their deposits in Turkey following the July 15 coup attempt, a reverse in this trend would alone be enough to carry the parity rate up to 3.40 level.
Companies may be pressured to increase their foreign currency deposits to cover for their deficits, which currently stand at historic highs, it added.
The report said that since the difference between Turkish lira and foreign currency interest rates have decreased, it could be another factor increasing the interest for foreign currency deposits.