Has the Turkish lira plugged its recent plunge against its US peer? The USD/TRY currency pair is trying to break below 8.10, but higher-than-expected consumer and price inflation could limit the lira’s gains to kick off the trading week.
According to the Turkish Statistical Institute (TSI), the consumer price inflation rate jumped to a 20-month high of 16.19% year-over-year in March, up from 15.61% in February. The market had penciled in an inflation reading of 16.11%.
Turkey reported upward pressure in a broad array of goods and services: transportation (24.85%), food (17.44%), housing and utilities (12.17%), and apparel (7.43%).
On a monthly basis, the inflation rate rose 1.08%, higher than the median estimate of 1.04%.
The producer price index (PPI) surged for the tenth consecutive month to an annualized rate of 31.2% in March, up from 27.1% in the previous month. This is the highest annual producer price inflation since January 2019, driven by escalating prices for manufacturing (33.96%), mining (21.26%), and utilities.
On a per-month basis, the PPI advanced 4.1%.
Could the higher inflation numbers force the central bank to either raise interest rates or suspend a rate cut? In a recent interview with Bloomberg, the new central bank chief Sahap Kavcioglu urged investors not to take a rate cut for granted, arguing that policymakers will monitor the data before making a decision at this month’s Monetary Policy Committee (MPC) meeting.
I do not approve a prejudiced approach to MPC decisions in April or the following months, that a rate cut will be delivered immediately.
In the new period, we will continue to make our decisions with a corporate monetary policy perspective to ensure a permanent fall in inflation. In this respect, we will also monitor the effects of the policy steps taken so far.
The lira has collapsed since President Recep Tayyip Erdogan terminated his third central bank head in a year. Erdogan replaced Naci Agbal with Kavcioglu, who is more in line with the president’s economic thinking, including easing monetary policy. But Erdogan has encouraged foreign investors and citizens to not be too worried about the circumstances unfolding, stating that the weakness in the broader financial markets is not a reflection of the economic reality in Ankara. The president urged citizens to transfer their gold and forex holdings into lira-denominated assets and recommend foreign investors keep their capital in Turkey.
The USD/TRY currency pair fell 0.73% to 8.1070, from an opening of 8.1665, at 14:31 GMT on Monday. The EUR/TRY dropped 0.26% to 9.5774, from an opening of 9.6075.