The Turkish lira is trading relatively flat against its US counterpart to kick off the trading week as inflation is still ravaging the country. Even its manufacturing sector, which has been resilient throughout the coronavirus pandemic, has slipped into contraction territory. So, what’s next for Ankara?
According to the Turkish Statistical Institute (TSI), the annual inflation rate surged 61.14% in March, up from 54.44% in the previous month. But this is slightly lower than the market estimate of 61.6%.
On a month-over-month basis, the consumer price index (CPI) rose 5.46% last month, slightly below the median forecast of 5.77%.
Producer prices also skyrocketed in March, with the producer price index (PPI) soaring 9.19% on a monthly basis. The PPI soared 114.97% year-over-year.
Last week, the Istanbul Chamber of Industry’s manufacturing purchasing managers’ index (PMI) fell to 49.4 in March, down from 50.4 in February – anything below 50 indicates contraction.
The monthly report highlighted lingering sluggishness in output new orders, while price hikes and employment rise. At the same time, the lira’s weakness, rampant price inflation, and the war in Ukraine are weighing on the manufacturing industry, leading business sentiment to slump.
Over the next week, crucial economic updates will be released, such as industrial production, retail sales, and automobile production. The central bank will also convene for its April monetary policy meeting, with many anticipating policymakers to leave interest rates unchanged.
In recent weeks, President Recep Tayyip Erdogan and his government have attempted to cushion the economic blows and currency crisis by cutting taxes on basic goods and revising electricity tariffs.
However, with the Ankara federal budget expected to slip into a deficit, it is unclear as to how much wiggle room Erdogan has to employ these types of stimulus and relief measures.
Meanwhile, the lira has continued its weakness this year, falling more than 10% year-to-date against the greenback. Over the last 12 months, the lira has plummeted about 81%.
The USD/TRY currency pair was unchanged at 14.6852, from an opening of 14.6868, at 13:20 GMT on Monday. The EUR/TRY tumbled 0.49% to 16.1434, from an opening of 16.2232.