TRY: Inflation and easing threaten Lira – Commerzbank

Commerzbank’s Tatha Ghose notes USD/TRY has broken above 49.0, continuing a pattern of defended levels being breached in step-jumps. He downplays the broader systemic impact of a Turkish stock market scandal and instead highlights surging fuel-driven inflation and the prospect of CBT rate cuts. Ghose warns that an easing cycle in an inflation-vulnerable economy is the key risk for the Lira.

Monetary easing into rising inflation

"The Turkish lira weakened past the 49.0 level against the US dollar yesterday."

"Preliminary estimates point to CPI possibly rising by 2.2%m/m in September, helped by diesel price increasing by 12.2% and petrol by 8.1% through to 24 September."

"Inflation pressure will accelerate further in October when the government removes the remaining sliding-scale fuel tax cushion."

"Against such rapid inflation, Turkey’s central bank (CBT) appears set to begin cutting rates at its next meeting (probably by 100bp)."

"Yet, one of the most inflation-vulnerable countries appears set to begin a monetary easing cycle, partly pressured by elections coming up in 2028. This prospect is the true risk factor, in our view, and much more dangerous for the lira exchange rate."

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