Turkish Lira Plunges Again As Inflation Tops 83%; Erdogan Promises More Rate Cuts

The Turkish lira worsened against its US counterpart to start the trading week, as inflation soared and the government vowed to keep cutting interest rates. Now that Turkey is entrenched in a currency crisis, how much worse will the economy be in the home stretch of 2022 and heading into 2023?

According to the Turkish Statistical Institute (TSI), the annual inflation rate advanced to a 24-year high of 83.45% in September, up from 80.21% in August. The silver lining was that the consumer price index (CPI) came in below the market forecast of 84.63%.

The monthly inflation rate surged 3.08% last month, up from 1.46% in August. This was also just short of the 3.8% expectation.

Nearly everything was up across the board in Ankara, led by gains in housing, utilities, transportation, energy, and food.

Producer prices also surged last month, with the producer price index (PPI) rising to 151.5% year-over-year in September, up from 143.75% in the previous month. The monthly PPI swelled to 4.78% in September, nearly double from the previous month.

The Istanbul Chamber of Industry Manufacturing Purchasing Managers’ Index (PMI) was stuck in contraction territory for the seventh consecutive month, clocking in at 46.9 last month, down from 47.4.

“With manufacturers sitting on increasingly large finished goods inventories, the prospects for production over the coming months appear bleak,” said Andrew Harker, Economics Director at S&P Global Market Intelligence, in a statement.

Speaking at an event, President Recep Tayyip Erdogan insisted that continuing to slash interest rates will help fight inflation by growing the economy.

“My biggest battle is against interest. My biggest enemy is interest. We lowered the interest rate to 12%. Is that enough? It is not enough. This needs to come down further,” he stated.

At the recent Monetary Policy Committee meeting, Turkey’s central bank slashed interest rates by a full point to 12%, surprising financial markets.

“With external financing conditions tightening, the risks remain firmly skewed to sharp and disorderly falls in the lira,” wrote Liam Peach, a senior emerging markets economist at Capital Economics, in a note.

The USD/TRY currency pair rose 0.33% to 18.5631, from an opening of 18.4922, at 13:38 GMT on Monday. The EUR/TRY fell 0.09% to 18.1241, from an opening of 18.1402.

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