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Sticky CPI Risks Erdogan Becoming More Vocal on Rate Cuts

TURKEY
  • USD/TRY opens lower as an early $ buying spree eases.
  • TRY has been relatively more resilient to recent $ strength than its high-beta counterparts RUB & ZAR, and remains a bright spot in the EM space.
  • Concerns rising, however, about persistently high and sticky inflation in the 15-16% bracket giving Erdogan more license to exert his unconventional beliefs on inflation and press for earlier rate cuts than are required or (worst case scenario) remove Agbal.
  • Reduced FX passthrough and early signs of de-dollariastion may help, but are relatively slow acting - adding to increased headline risks from Erdogan over the next 2-3 months if CPI remains elevated.
  • For now, TRY optimism remains high and focus is on US & EU relations where Turkey is playing the cooperation game.
  • USD/TRY remains heavy, with most anticipating a push towards 7.00 once risk sentiment normalises and $ selling re-emerges. Sup1: 7.10, Sup2: 7.00, Res1: 7.1733, Res2: 7.2002
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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