At 2.47% month-on-month, consumer price inflation in Turkey was slightly above the median of analysts’ expectations (2.29%). Under normal circumstances, comments on yesterday’s release by TurkStat would unfold in a similar manner. However, nothing about inflation in Turkey is normal, notes Ulrich Leuchtmann, Head of FX and Commodities Research at Commerzbank.
The lira continues to depreciate significantly in nominal terms
“With such high inflation, measuring it is particularly difficult. Reporting the rate to two decimal places is therefore nonsense. Official figures enjoy little public trust. The only problem is that when TurkStat reports lower inflation rates than in the past, no one believes it, and lower figures do not change price-setting behaviour. A dynamic of falling inflation is impeded.”
“On the other hand: Assuming inflation is measured reasonably well, the previous month’s rates of around 2½% imply that monetary policy (with a key rate of 50%) is now clearly restrictive. So, it is actually time for the first interest rate cuts. But this phase is particularly tricky. After the lira crisis of 2018, the central bank had cut its key interest rate too quickly and too aggressively, sowing the seeds for the next, even bigger wave of inflation and depreciation.”
“This is far from being forgotten. Neither by currency traders nor by those who set prices in Turkey. The danger zone is therefore not behind us. Anyone who expects more from the lira in these circumstances than a devaluation that underestimates price developments, anyone who wonders, for example, why the lira continues to depreciate significantly in nominal terms, is much, much too optimistic.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
