Turkey is going through an inflationary crisis as the latest numbers point to a disastrous situation for a country that has abandoned a more orthodox way to manage fiscal and monetary policy. The lira weakened against the US dollar and the euro amid the recent data, potentially signaling that the currency will continue its descent for, at the very least, the remainder of the second quarter. Can the lira regain the confidence of the foreign exchange markets, or is all hope lost?
According to the Turkish Statistical Institute (TSI), the annualized inflation rate climbed to 17.14% in April, falling short of the median estimate of 17.3%. This is still up from the previous reading of 16.19%, driven by higher prices for transportation, shelter, utilities, food, and apparel.
On a monthly basis, the consumer price index (CPI) rose 1.68%, which was also below the market forecast of 1.8%.
Producer prices continue to dominate the inflation story, with the producer price index (PPI) topping 35% year-over-year in April, up from 31.2% in March. Prices climbed for manufacturing, mining, electricity, and the water supply. The annualized PPI also reached the highest level since November 2018.
On a per-month basis, the PPI rose to 4.34%.
Ankara’s manufacturing sector slumped last month. The Istanbul Chamber of Industry Manufacturing purchasing managers’ index (PMI) reached 50.4, down from 52.6 in March — anything above 50 indicates expansion. This was the worst PMI reading since the beginning of the coronavirus pandemic, caused by disappointing performances in new exports, employment, output, new orders, prices, and business sentiment.
All eyes will be on the central bank May policy meeting on Thursday. It is widely expected that the institution will hold the line on the benchmark interest rate of 19%, despite investors fearful that the Monetary Policy Committee (MPC) would be slashing rates after terminating Naci Agbal.
With international headlines dominating the resurgence of COVID-19 infections in India, Turkey has been witnessing its fair share of new cases. Ankara is suffering from a seven-day average of more than 35,000, forcing policymakers to impose new lockdown measures. In total, Turkey has reported 4.88 million cases and a death toll of close to 41,000.
This has market analysts warning that the country’s tourism sector will likely lose another summer, even if the lockdown results in reducing daily coronavirus cases to below 5,000 by the end of this month. Bulgaria, Germany, Great Britain, Iran, and Russia, which are the nation’s top tourist sources, have posted travel warnings to Turkey.
The USD/TRY currency pair rose 0.12% to 8.2981, from an opening of 8.2885, at 13:50 GMT on Monday. The EUR/TRY advanced 0.5% to 10.0130, from an opening of 9.9795.