High Turkish inflation keeps pressure on TRY

The Turkish lira has been losing more than 1% over the last 24 hours following the release of another batch of inflation statistics which show no sign of easing and trades near 17.0.

Consumer prices rose by 5% during June, and the annual growth rate accelerated to 78.6%.

The annual producer price growth accelerated to 138.3% compared to 132.2% the month before. The development of this index indicates that there is still room for consumer inflation growth acceleration as manufacturers still have room to pass on increased costs to final prices. Judging by the increasing monthly rate of consumer price increases, manufacturers are accelerating this cost pass-through, but they are not there yet.

Last month’s end, we saw the Turkish lira gain protection on a pullback near the December highs, when the USDTRY fell to 16 from 17.40. However, this corrective pullback was short-lived and failed to change the trend. The USDTRY has stayed above below the 50-day moving average.

Rising inflation and a central bank constrained by Erdogan do not make the recent jump in the lira sustainable. Instead, it will only inflame the currency market speculators, who will quickly return it to the recent highs near 17.40.

The highest gap between inflation and the key rate (now at 14%) amongst the world’s biggest economies continues to pressure the Turkish currency. Therefore, an even deeper depreciation is possible soon, which can only be stopped by an even greater restriction of capital controls or central bank interventions.

The FxPro Analyst Team