USD/TRY likely to head up towards the 4.00 mark in medium-term, says Commerzbank

The USD/TRY currency pair is expected to head up towards the 4.00 mark over the medium-term, according to a recent research report from Commerzbank. Turkey had published its consumer price inflation data for February early this week.

The market expected continued improvement after a favorable reading in January. However, the headline inflation rate didn’t moderate notably, standing at 10.26 percent after 10.35 percent in January. Hence the market is disappointed because the other key driver for the lira – the trade deficit – already received bad news last week when import growth surged by 38 percent y/y in January and the rolling trade deficit reached 10 percent of GDP.

The disappointing January CPI data means that both key lira drivers are deteriorating – which impacts the currency negatively. The moderation in January inflation was driven by volatile categories – core inflation softened only by a tiny fraction – hence, there was always the risk that the headline reading could reverse in the next reading.

Overall, the lira has been more stable recently, and therefore the tendency for inflation will be to peak and moderate – but only slightly, say to around 9 percent in the coming months. This extent of moderation will not neutralize Turkey’s long-term inflation problem, though – at best, it can bring near-term relief.

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