Turkish Lira: Inflation risks keep pressure on TRY – Commerzbank

Tatha Ghose at Commerzbank expects Turkey’s October Consumer Price Index (CPI) to show a renewed acceleration in monthly inflation back above 2%. With Oil prices rebounding and tax cushions removed, he argues that continued rate cuts by the central bank undermine disinflation claims, suggesting that the Turkish Lira (TRY) will likely keep depreciating under persistent inflation and easing policy.

Higher CPI and ongoing monetary easing

"Turkey’s statistics office (Turkstat) will publish October CPI and PPI data this morning: the market consensus forecasts headline inflation at 29.5% y/y and core inflation at 28.5% y/y. As usual, we do not go by year-on-year rates: our translation into month-on-month change after seasonal adjustment works out to c.2.1% m/m for headline CPI and 1.9% m/m for core prices."

"An interim decline in imported energy prices probably helped September’s reading. This benefit is now reversing as oil prices quickly jumped again, while the remaining fuel-tax cushion has been removed."

"Istanbul CPI already points in the same direction. Although year-on-year inflation slowed to 32.5% y/y in October (from 33.6% y/y), prices increased by 2.47% m/m – the third consecutive acceleration from 2.11% m/m in September and 1.66% m/m in August. Food price also accelerated by 2.6% m/m after two unusually subdued months."

"Against this background, however, Turkey’s central bank (CBRT) will probably cut its one-week repo rate again by 100bp later this month. CBRT is now locked into a rate-cutting cycle, even if on paper, it says that it remains alert to upside inflation risk and will only decide on a meeting-by-meeting basis. A return of month-on-month inflation to the c.2% range, alongside continued monetary easing, will escalate doubts about the disinflation narrative. The lira has been depreciating steadily and will probably remain under pressure because of this."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)