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Deep Negative Real Yields To Keep TRY Under Pressure

TURKEY
  • Yesterday, economic data showed that CPI inflation accelerated to 79.6% in July, up from 78.6% the previous month, maintaining the level of uncertainty in Turkish market 'extremely elevated'.
  • Last month, we also saw that the 12M expected inflation also continued to surge in July up to 40.2% (vs. 37.9% exp.), confirming that inflation expectations keep de-anchoring in the current environment.
  • Sell-side analysts are now expecting inflation to peak at around 90% in October / November before starting to decelerate.
  • Hence, the 'deep' negative real 10Y yield (currently at around -60%) should continue to weigh on the lira and domestic risky assets in the near to medium term.
  • TRY is the worst performing currency among the EM world so far this year, down nearly 26% against the US Dollar.
  • We have seen that the USDTRY spot rate has been testing the 18 resistance level; price action suggests that CBRT is likely to have been ‘protecting’ the 18 level in recent days.
  • A clear break above the 18 level would open the door for a move up to 18.36 (all time high).

Source: Bloomberg/MNI

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  • Yesterday, economic data showed that CPI inflation accelerated to 79.6% in July, up from 78.6% the previous month, maintaining the level of uncertainty in Turkish market 'extremely elevated'.
  • Last month, we also saw that the 12M expected inflation also continued to surge in July up to 40.2% (vs. 37.9% exp.), confirming that inflation expectations keep de-anchoring in the current environment.
  • Sell-side analysts are now expecting inflation to peak at around 90% in October / November before starting to decelerate.
  • Hence, the 'deep' negative real 10Y yield (currently at around -60%) should continue to weigh on the lira and domestic risky assets in the near to medium term.
  • TRY is the worst performing currency among the EM world so far this year, down nearly 26% against the US Dollar.
  • We have seen that the USDTRY spot rate has been testing the 18 resistance level; price action suggests that CBRT is likely to have been ‘protecting’ the 18 level in recent days.
  • A clear break above the 18 level would open the door for a move up to 18.36 (all time high).

Source: Bloomberg/MNI