Lira depreciates faster ahead of rate decision – Commerzbank

Turkey’s central bank (CBT) will announce its monthly rate decision: analysts unanimously predict an unchanged rate at 50%. In the background, the pace of Lira (TRY) depreciation has been accelerating – even against the weak US dollar (USD), Commerzbabnk’s FX strategist Tatha Ghose notes.

CBRT to announce its monthly rate decision

“If we calculate the annualised rate of depreciation based on the average daily change since the beginning of July, we get 26%; if we repeat the same calculation but beginning more recently on 1 August, we get 36%. This recent acceleration is not a comforting sign, and reportedly, even required FX intervention by state banks to keep in check yesterday.”

“CBT’s liquidity sterilisation measures have failed to make a dent into the lira depreciation trend. What is more, inflation expectations are not improving at all. Last but not least, recent surveys find growing dissatisfaction of the electorate with the economy and demands of an early election. If CBT had been the sole economic policymaker in Turkey, they would urgently have to think of some response to these developments.”

“Just assuring that inflation will begin to moderate during H2 is not good enough – the markets are obviously seeing through the superficial nature of the improvement so far. But, it is also true that there are other significant policymakers in Turkey – and they need to play their part in terms of fiscal contraction and establishing complete credibility. Without this, just another rate hike by CBT would be meaningless in any case.”