Monitoring Turkey: Geopolitical relief to support disinflation
At a Glance
The desk asserts that easing geopolitical tensions around Turkey, along with promising inflation data, may pave the way for the Central Bank of Turkey (CBT) to adopt a more accommodative monetary stance. Per the full note from ing-think, July's better-than-expected consumer price index reinforces a disinflationary trend, aided further by improving foreign reserves linked to a significant $14.8 billion in FX purchases in June. This backdrop suggests the CBT could initiate liquidity easing by late August or September, depending on forthcoming inflation readings and reserve dynamics.
Key Takeaways
- 01Turkey's annual inflation shows a downtrend, with significant geopolitical easing contributing to a positive outlook.
- 02The CBT may move towards liquidity easing as foreign reserves improve, potentially by August or September.
- 03Analysts anticipate a policy rate stabilization or reduction towards 35% in Q4 2023.
- 04Geopolitical developments, especially in relations with Iran, could significantly impact Turkey's economic landscape.
Full Analysis
What the desk is arguing
The desk believes that geopolitical relief and declining inflation in Turkey are set to support monetary easing by the CBT. The July CPI data supports a sustained downtrend in annual inflation, easing concerns from energy prices and geopolitical risks; this has been highlighted by analysts like Muhammet Mercan and Frantisek Taborsky in their commentary.
This assessment is bolstered by the notable improvement in Turkey's net foreign exchange position, which saw an uptick of $14.8 billion in FX reserves during June, directly contributing to a favorable outlook for inflation. The anticipation for a potential policy rate refocus to 35% in Q4 underlines the proactive flexibility the CBT is adopting in light of evolving economic conditions.
Where it sits in our coverage
Our consensus targets suggest a range for USD/TRY of 1.075, with notable contributions from firms like: - jpmorgan: 1.10, Mar-26 - bofa: 1.04, Mar-26
This desk's call aligns closely with jpmorgan, suggesting an upward trajectory for the lira as geopolitical tensions ease, whereas bofa diverges with a more cautious stance at the lower end of the range.
How other firms see it
Aligned firms, including jpmorgan, are supportive of a stronger Turkish lira due to improved economic conditions, while bofa takes a contrary view, citing persistent external risks.
Focus on related pairs such as EUR/TRY and the trajectory of crude oil prices, as shifts here will likely reflect CB policies and inflation dynamics moving forward.
Market Implications
Traders should monitor the USD/TRY pair, particularly around the 1.075 level for potential shifts in sentiment following inflation prints or policy signals from the CBT. Any moves towards liquidity easing could catalyze a stronger lira.
From the original
Articles Monitoring Turkey: Geopolitical relief to support disinflation Published 14:50 Turkey Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download July data reinforced the downtrend in annual inflation, with risks from energy prices and geopolitics easing
Related speeches
4 itemsMonitoring Turkey: Further easing likely in fourth quarter
Lead — The desk sees the Central Bank of Turkey (CBT) likely continuing its easing cycle into Q4, following a reduction of the effective funding rate from 40% to 37%. As per the full note, this decision is rooted in easing inflationary pressures, alongside signs of slowing domestic demand, which are bolstering market expectations for further cuts. With Turkey's inflation projected to dip below 30%, the fiscal landscape appears increasingly favorable for continued easing. Moreover, the resumption of asset purchases indicates a proactive approach to manage liquidity and drive economic activity.
Turkish inflation falls further in August
The Turkish inflation data for August reveals a mixed picture, with the annual rate declining to 31.5%, slightly better than expectations but still significantly above the Central Bank of Turkey's (CBT) target of 24%. This gradual disinflationary trend underscores the ongoing challenges the central bank faces in stabilizing prices, particularly given external pressures from global commodity prices. Per the full note [source], the CPI increased by 1.84% month-over-month, indicating that the path towards the CBT's inflation targets remains fraught with difficulty, especially amid rising energy costs. Institutional traders should monitor how this interplay influences the Turkish lira in forthcoming sessions, especially as the market looks towards future central bank decisions.