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CPI Surprise Erodes Carry Buffers, But Not Prompt Hikes Just Yet

TURKEY
  • USD/TRY heavy this morning in the lead up to CPI on a weaker dollar into the back end of yesterday's session.
  • Upside surprises in CPI at 15.61% in headline, 16.21% in core and 27.09% in PPI may see markets leaning on the hawkish side for the next CBRT meeting as the 1w repo differential erodes further.
  • May see a comment this morning from Agbal reiterating a "decisive tightening stance" from the CBRT to achieve a permanent decline in CPI to target, but this upside print gives more weight to Erdogan's political pressure to cut rates and may embolden his rhetoric going forward.
  • Our base case still sees 17% as being sufficient to anchor inflation, stabilize TRY and achieve the target disinflation to ~10.5-11% by year-end, after enduring some stickiness in the next few months.
  • However, an uptick beyond 16% in headline will create risks to this forecast. USD/TRY showing some uncertainty post-print holding back slightly as other high-yielders benefit from early dollar weakness.
  • Eroded carry from higher CPI is a concern, but real rates still remain among the widest in the EM space and should act as a good TRY buffer.
  • Intraday sup1: 7.3163, Sup2: 7.2480, Res1: 7.3935, Res2: 7.4769
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market News
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market News

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