The Turkish lira is trading under its fair market value, and its depreciation is expected to narrow the current account deficit in Turkey, according to the Washington-based Institute of International Finance (IIF) on Tuesday.
"The currency is now clearly undershooting fair value," the global financial industry association said in a report titled "Turkey Update - Looking for a Way Forward."
The lira lost approximately 40 percent of its value against the dollar this year, but bounced back strongly since the beginning of the week --gaining around 9 percent.
IFF emphasized that the depreciation will shrink the current account deficit of Turkey.
"We expect lira depreciation to narrow the current account deficit due to import compression and an anticipated boost to exports," the report said.
It added that Turkey's current economic situation can be managed with decisive and well-calibrated policies, such as "appropriate fiscal consolidation measures" and "working to defuse tensions with the U.S."
Turkey and the U.S. are currently experiencing rocky relations following Washington’s imposition of sanctions on Interior Minister Suleyman Soylu and Justice Minister Abdulhamit Gul for not releasing American pastor Andrew Brunson, who faces terrorism charges in Turkey.
President Donald Trump's decision to double tariffs on Turkey last Friday was another salvo in the growing dispute between the two NATO allies.
By Ovunc Kutlu in New York