Credit Suisse indicated that the Turkish authorities' monetary and fiscal measures, along with an improvement in risk sentiment towards emerging markets and a reassessment of the market's exaggerated risk perception about the Turkish banking sector, have helped reverse the depreciation pressure on the Turkish lira. However, it considered that it is too soon to be optimistic about the policy outlook, given Turkey's weak institutions and track record of inappropriate policy-making. It noted that any political pressure to push for premature monetary policy or fiscal easing would trigger an adverse reaction from the markets. 

Credit Suisse estimated that the depth and duration of Turkey's economic recession depends on the country's access to external funding, which, in turn, is contingent on the steady implementation of prudent policies and the authorities' tolerance for a contraction in economic activity over the next few quarters. It anticipated the economic slowdown and rebalancing, which started before the August turmoil, to be more pronounced in coming quarters. As such, it projected real GDP growth to decelerate from an estimated 3.5% in 2018 to 0.7% in 2019. Further, it anticipated the inflation rate to increase from an average of 15.6% in 2018 to 18.6% in 2019.

In parallel, Credit Suisse estimated that the banking sector and non-bank corporates have enough liquidity in foreign currency to meet their foreign currency liabilities over the next six to 12 months. Further, it said that the banking sector's Tier-One capital ratio would remain around the current prudential limits under a scenario whereby the non-performing loans (NPLs) ratio rises from 3% currently to 10.5%, and the exchange rate stands at TL6.5 against the US dollar. It said that a loss of policy credibility and the tension between Turkey and the U.S. constitute the main risks to the outlook in coming months.    
Source: Credit Suisse