TRY: Not again – Commerzbank
|The Turkish lira (TRY) exchange rate has been relatively stable in recent weeks, even versus the strong US Dollar (USD). But, it may be beginning to drift weaker over the past couple of days. One reason is the combination of a downgrade to the inflation outlook by the central bank (CBT) and fresh remarks from President Tayyip Erdogan during a trip abroad that he thinks that interest rates and inflation can fall together in Turkey, Commerzbank’s FX analyst Tatha Ghose notes.
Erdogan’s remarks are prone to be especially misinterpreted
“For CBT to have to raise, not only the 2024, but also the 2025 inflation forecast further this late in the monetary policy cycle is not at all ideal. True, only the end-2024 forecast appears high in absolute terms at 44% while the end-2025 forecast appears more reasonable at 21%. But, who is going to have any confidence in the latter number when inflation forecasts are still being serially revised up every quarter?”
“Fresh month-on-month increase in prices is still running at a relatively 40% annualised pace. This month-on-month rate would have to converge to target much before we can expect to see the year-on-year rate converging. It is implicit within CBT’s latest inflation report that this is taking longer than previously thought. That is bad news, and once again brings us back to the crucial issue of President Erdogan’s remaining patience with high interest rates.”
“To be fair, we do not get the sense that Erdogan was demanding low interest rates like he has done before, but rather was backing Simsek to be the right person to achieve good economic results. Still, his remarks are prone to be especially misinterpreted by the media and by the FX market because he has long history in this regard. It is unhelpful for him to elaborate details of the relationship between inflation and interest rate, citing examples of countries or situations when both can be low.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.