While Turkey’s central bank (CBT) removed sentences about additional tightening in its last monthly statement, and even introduced hints about monetary easing in the medium-term, the CB maintained its hawkish bias for the short-term, and is watchful of inflation developments. In this context, the September data were not encouraging at all, Commerzbank’s FX analyst Tatha Ghose notes.  

USD/TRY to trade at 34.50 in the end of 2024

“Istanbul cost of living data had already warned us about an upside surprise, and the national CPI data then displayed re-acceleration in core prices. The September rate of change annualises to, still, nearly 50% underlying inflation rate. And, many commentators anyway assume that this national CPI measure understates true inflation. Given such an uncomfortable fundamental situation, there is no case for CBT to shift to a dovish stance or cut rates soon.”

“To its credit, the economic policy team does not appear to be in any hurry with this, which has positively surprised markets. President Tayyip Erdogan’s support has also proved to be a welcome surprise. Recent commentary confirms that CBT might resort to liquidity sterilisation or other quantitative measures, but will not change the base rate prematurely. Of course, in Turkey there are risks surrounding such a view, but for a change, the risks do not appear to be increasing.”

“The lira has fluctuated more like a free exchange rate over the past couple of months – which probably reflects less intervention by policymakers and more integration with free world markets – which is positive for underlying bank balance sheets and CBT’s FX reserves. Still, in our view, the medium-term trend of the lira exchange rate remains that of gradual depreciation: our end-2024 forecast for USD/TRY is 34.50.”