TRY: Inflation and easing threaten Lira – Commerzbank
Commerzbank’s Tatha Ghose notes USD/TRY has broken above 49.0, continuing a pattern of defended levels being breached in step-jumps. He downplays the broader systemic impact of a Turkish stock market scandal and instead highlights surging fuel-driven inflation and the prospect of CBT rate cuts. Ghose warns that an easing cycle in an inflation-vulnerable economy is the key risk for the Lira.
Commerzbank's analyst Tatha Ghose reports that USD/TRY has surpassed 49.0, with inflation-driven fuel costs and CBT rate cuts driving the Turkish lira's decline. The Lira weakened to below 49.0 against the US dollar, with September CPI estimates showing a potential 2.2% month-over-month rise, fueled by a 12.2% increase in diesel prices and an 8.1% rise in petrol prices.
This inflation pressure will intensify in October when the government eliminates the fuel tax sliding-scale cushion. The Central Bank of Turkey (CBT) is likely to initiate rate cuts during its next meeting, possibly by 100 basis points. However, the looming inflation-vulnerable monetary easing cycle poses the most significant risk to the lira's exchange rate, making it a more pressing concern.
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