The Turkish lira is extending its rebound to kick off the trading week, despite soaring inflation and a bearish outlook for the economy in 2022. The lira has been in a freefall this year against most major currency rivals. Will next year be any different?
According to the Turkish Statistical Institute (TSI), industrial production rose 0.6% in October, up from the 1.5% decline in September. On an annualized basis, industrial output climbed 8.5%, better than the median estimate of 8.3%.
Production surged for all categories, including intermediate goods, durable consumer goods, energy products, and capital goods.
Automobile production plummeted 19.7% year-over-year last month.
Retail sales advanced 0.9% in October, down from the 1.8% gain in the previous month. On a year-over-year basis, retail trade jumped 15.2%.
This represented the softest increase in the retail sector since July amid modest growth in food and non-food products and automotive fuel.
On the labor front, the unemployment rate dipped to 11.2% in October, while the labor force participation rate edged up to 52%.
All eyes will be on the December monetary policy meeting on Thursday. Economists forecast that the central bank will cut interest rates by 100 basis points to 14%.
Despite the annual inflation rate topping 21% in November and the producer price index (PPI) also spiking at an annualized rate of 54.62%, officials have been easing monetary policy, primarily at the direction of President Recep Tayyip Erdogan.
But these public policy pursuits have forced S&P Global Ratings to lower its outlook on the nation’s sovereign credit rating to negative amid the lira’s descent and soaring inflation.
“We could lower the ratings if Turkey’s economic policy mix further undermined the exchange rate of the lira and worsened the inflation outlook, heightening the risk of banking system distress and thereby implying potential contingent liabilities for the government,” S&P said in a statement Friday.
The USD/TRY currency pair tumbled 0.34% to 13.8301, from an opening of 13.8800, at 15:41 GMT on Monday. The EUR/TRY slumped 0.55% to 15.6213, from an opening of 15.7046.