Turkish Lira: July inflation and FX rules weigh on lira – Commerzbank
Commerzbank’s Tatha Ghose notes Turkey’s July Consumer Price Index (CPI) slowdown to 31.7% year-on-year masks still-strong underlying price momentum, with smoothed headline and core inflation above 2% month-on-month.
Commerzbank analyst Tatha Ghose observes that Turkey's July Consumer Price Index (CPI) figures, though showing a slowdown, still signal strong underlying inflation trends. July inflation slowed to 31.7% year-on-year from 32.1% in June, yet core measures remain above 2% monthly. However, these numbers may be deceptive; base effects in year-on-year rates and smooth monthly data do not reveal decisive improvements in inflation momentum.
The Istanbul CPI data, in particular, is controversial, with older (2015 base) reports suggesting 40%y/y inflation and the newer (2023 base) series showing slightly slower 35%y/y inflation. FX market participants view such revisions with skepticism, given past disputes over data reliability. Additionally, Turkey's central bank (CBRT) has introduced new FX conversion limits tied to value added, profitability, and labor costs, extending the 3% support and 35% export proceeds surrender rules until January 2027.
This maintains administrative support for reserves but remains a soft capital control framework. In summary, the recent CPI data and revised FX policies do not provide clear relief for the Turkish Lira, as underlying inflation trends remain robust.
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