Will the Turkish Lira bottom side rebound?
2024-04-08
■The CPI inflation rate accelerated in March, and the next meeting on the 25th may implement additional interest rate hikes
■ Despite speculation that President Erdogan will tolerate interest rate hikes, it is important to note whether the lira will continue to rebound
On the 3rd, Turkey’s Statistics Bureau announced Turkey’s consumer price index (CPI) in March, which rose 68.50% year on year, slightly lower than the market expectation (69.10%). However, the rise in education and communication costs led to an acceleration compared with the previous month (67.07%). The core CPI, excluding food, energy, beverages, tobacco, and gold, also rose to 75.21%, confirming the severity of the inflation problem. Contrary to market expectations, the Central Bank of the Republic of Turkey (CBRT) raised the policy interest rate from 45.00% to 50.00% at the monetary policy decision-making meeting on March 21. The basic downward trend observed through monthly inflation indicators is evident, emphasizing the stance of maintaining a tightening stance until inflation expectations converge within the expected range. In addition, if the expected inflation rate is expected to deteriorate significantly and continuously, it will imply further tightening. After the CPI was announced, Turkey’s finance minister said that the recent monetary and fiscal tightening had fixed inflation expectations and supported deflation. He stated that he would make every effort to achieve the price target and further support the policy stance of the central bank.
In the local elections on March 31st, the opposition party won the mayoral elections in major cities such as Istanbul. The ruling party led by President Erdogan, the Justice and Development Party (AKP), has suffered a major failure. The rise in inflation and the devaluation of Turkey’s lira (lira) are cited as one of the reasons for the failure of the ruling party. Therefore, it is speculated that the President may tolerate the central bank's policy of raising interest rates to curb inflation. Amidst expectations for CBRT to raise interest rates at its next meeting on the 25th, the lira in March fell from the midpoint of 32 lira against the US dollar and also hit a historic low against the Japanese yen, dropping from 4.48 yen to the first half of the yen. However, even if CBRT raises interest rates at the next meeting, the actual interest rate will remain negative. The central bank is still wary of the depreciation of the lira due to the abnormal aversion towards high-interest rates and pressure from the central bank. We need to carefully observe whether the lira will rebound in the next three weeks.
■ Despite speculation that President Erdogan will tolerate interest rate hikes, it is important to note whether the lira will continue to rebound
On the 3rd, Turkey’s Statistics Bureau announced Turkey’s consumer price index (CPI) in March, which rose 68.50% year on year, slightly lower than the market expectation (69.10%). However, the rise in education and communication costs led to an acceleration compared with the previous month (67.07%). The core CPI, excluding food, energy, beverages, tobacco, and gold, also rose to 75.21%, confirming the severity of the inflation problem. Contrary to market expectations, the Central Bank of the Republic of Turkey (CBRT) raised the policy interest rate from 45.00% to 50.00% at the monetary policy decision-making meeting on March 21. The basic downward trend observed through monthly inflation indicators is evident, emphasizing the stance of maintaining a tightening stance until inflation expectations converge within the expected range. In addition, if the expected inflation rate is expected to deteriorate significantly and continuously, it will imply further tightening. After the CPI was announced, Turkey’s finance minister said that the recent monetary and fiscal tightening had fixed inflation expectations and supported deflation. He stated that he would make every effort to achieve the price target and further support the policy stance of the central bank.
In the local elections on March 31st, the opposition party won the mayoral elections in major cities such as Istanbul. The ruling party led by President Erdogan, the Justice and Development Party (AKP), has suffered a major failure. The rise in inflation and the devaluation of Turkey’s lira (lira) are cited as one of the reasons for the failure of the ruling party. Therefore, it is speculated that the President may tolerate the central bank's policy of raising interest rates to curb inflation. Amidst expectations for CBRT to raise interest rates at its next meeting on the 25th, the lira in March fell from the midpoint of 32 lira against the US dollar and also hit a historic low against the Japanese yen, dropping from 4.48 yen to the first half of the yen. However, even if CBRT raises interest rates at the next meeting, the actual interest rate will remain negative. The central bank is still wary of the depreciation of the lira due to the abnormal aversion towards high-interest rates and pressure from the central bank. We need to carefully observe whether the lira will rebound in the next three weeks.