Turkish lira under pressure on expectations for further monetary easing

Turkey's annual inflation rate dropped from 8.05 percent in August to 7.28 percent in September, beating median estimates for a drop to 7.87 percent. The recession in domestic demand caused by tourism has curbed general price increases, which in turn is reflected in inflation.

Central Bank of Turkey policy makers convene October 20 for their monthly rates meeting after having cut the overnight lending rate by 250 basis points since March. The fall in core inflation has inevitably boosted expectations that the Central Bank will continue to cut rates this month. Finance Minister Naci Agbal said in Ankara "The drop also supports central bank rate cuts, which will “hopefully” continue."

Additionally weighing on investor sentiment towards Turkish assets were domestic political tensions, which resurfaced earlier this week, with a purge of officials after July’s failed coup being further extended.

Furthermore, Turkish government has cut its official 2016 economic growth target to 3.2 percent from the earlier estimate of 4.5 percent through its new medium-term economic program yesterday. The fiscal deficit target for next year has been broadened to almost 2 percent of GDP from 1 percent. The government has widened the current account deficit forecasts for 2016 and 2017 as well by 0.5 percentage points of GDP.

The Turkish lira remained under pressure hovering close to a 2-½-month peak near 3.0655/$ hit on Wednesday. USD/TRY was trading at 3.0501 at around 11:00 GMT.