TRY: High energy sensitivity and policy pressure – BNP Paribas

BNP Paribas underlines Türkiye’s acute sensitivity to higher energy prices and exchange rate moves. The report notes a large energy deficit, strong exchange rate pass‑through and a sharp rise in local yields, as markets price faster monetary tightening. While the Lira has recently been more stable than Central European currencies, inflation risks and funding costs remain elevated.

Energy pass through and lira dynamics

"Currently, the Turkish lira has held up better than Central European currencies (-0.4% against the US dollar since 27 February) due to interventions by the Central Bank. However, the pass-through coefficient stands at 0.4, in contrast to the range of 0.1 and 0.2 for the main Central European countries and South Africa."

"For instance, Türkiye exhibits all the characteristics of an economy that is highly sensitive to energy price shocks. Its central bank estimates that a sustained increase in oil prices of 10% would result in an additional 1 percentage point (pp) of inflation within a year. Estimates by local economists range from 4 to 6 pp, based on assumptions that the price of Brent crude will stabilise at USD 85 or USD 100 for at least a year, even taking into account the mechanism designed to cushion price rises, which is very generous to consumers (up to 75%)."

"The countries most affected are those in Central Europe and South Africa, with rises of between 55 and 70 bp (with Hungary at the higher end) and, above all, Türkiye at +135 bp. The markets are therefore anticipating a surge in inflation, followed by a faster tightening of monetary policy than in Asia, mirroring trends observed in 2022. Türkiye has been the most impacted because of the significant structural exchange rate pass-through and the contagion effect on other prices."

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