Turkey CPI unlikely to offer support to lira

Turkey CPI print is not likely to offer much support for the lira. Consensus expectations are for a print of +6.86% yoy, +0.1% mom. CPI measures on a yoy basis show a declining trend, but mom data still continue to exhibit quite high volatility (as is always the case in Turkey). 

"Even if the data print at lower than expected levels, it is rather doubtful that this will support TRY because market participants expect that CPI will trend higher as pass through from the weakening exchange rate manifests later in the year. Indeed, at or at least it is close to the trough in Turkish CPI", says Commerzbank. 

What matters from now on will be the response function of the central bank (CBRT). Judging by CBRT's new policy framework announced at the weekend, the focus will be to deal with the consequences of TRY weakness rather than its principal causes. That being the case, there is little standing in the way of further gains in USD-TRY. 

"It is clear that CBRT are reluctant to raise interest rates with slowing economic growth. This is quite clear from the new policy framework announced at the weekend, which seeks to limit TRY weakness via new reserve requirements etc. rather than the principal causes. From a trading perspective investors should therefore take advantage of any low print in CPI to establish long USD-TRY positions", added Commerzbank.