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JPM on TRY and Inflation

TURKEY
  • As inflation continues to rise, the real policy rate offered by the CBRT gets more deeply negative.
  • The CBRT is in no rush to normalize its policy stance while demand remains robust, cost-led inflationary pressures are strong and credibility weakening continues.
  • In this environment, lira stability – that has at least partly been secured by the FX-protected lira deposit scheme and will likely be supported by strong tourism revenues – will be the main tool to restrain inflationary pressures in the short run.
  • Further lira weakness could worsen the inflation outlook.

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