(03 OCTOBER 2018)DAILY MARKET BRIEF 2:Turkish inflation rises to record levels
The Turkish lira took another hit on Wednesday amid disappointing inflation figures. Headline inflation measure broke another record in September as it climbed to 24.52%y/y, beating widely market’s estimate of 21.10% and up from 17.90% in August. The core measure does not give more cause for optimism as it surged 24.05%y/y compared to forecast of 19.31% and 17.22% in the previous month. USD/TRY rose as much as much as 1.80% to 6.0969 following the announcement, before easing to 6.0440.
The Central Bank of Turkey already increased the one-week repo rate by 16% this May this but it looks like further hike are coming down the pipeline. Indeed, after finally getting along with market expectations and raising interest rate, the CBRT has no choice but to keep moving in the same direction. A step back would be devastating for the lira, as it would destroy investors’ trust, which is still very fragile. The next central bank meeting is scheduled for October 25. In the meantime, and assuming that Erdogan takes the backseat, the lira should continue to trim losses slowly.
By Arnaud Masset
