Goldman Sachs said on Friday that the appointment of Mehmet Simcek as the Turkish Treasury and Finance Minister and “Hafiza Kaya Argon” as the Central Bank Governor indicates that the new administration recognizes the need to make monetary and fiscal changes.

Stability of the economy will require “a major adjustment, and we believe this will take place in phases in the exchange rate,” the bank said, revising several of its expectations for Turkey.

“In our view, this implies that a traditional policymaker will raise interest rates to 40 percent,” Clemens Graf said in a note to clients at the bank.

If the exchange rate and inflation expectations remain stable, Graf added, interest rates could be cut quickly, perhaps to 25 percent by the end of the year.

Goldman Sachs cut its forecast for Turkey’s GDP growth to 2.3 percent in 2023, down from a previous forecast of 2.9 percent.

The Turkish currency has been under heavy pressure since President Recep Tayyip Erdogan announced the formation of his new government earlier in the week after winning a new presidency, and its losses since the start of the year have reached nearly 19 percent.

The Turkish lira hit a new low against the dollar last Wednesday, hitting a record low of 22.98 against the US dollar, more than a week after President Recep Tayyip Erdogan’s re-election.

Turkish authorities succeeded in maintaining the lira’s stability for most of the year, consuming tens of billions of dollars in foreign reserves.

Turkey’s central bank’s net foreign exchange reserves hit an all-time high of $4.4 billion on May 26.

May.

(Reuters)