Turkey Arrests Journalists, Sets Up Terrorist “Tip Line” As Currency Plunges, Violence Escalates
Last month, Turkey’s central bank had a chance to give the plunging lira some respite by preempting the Fed and hiking rates.
Only they didn’t.
And not only did they not hike, they made it clear that tightening would only occur once the Fed tightened and then made matters immeasurably worse by proceeding to stumble through a “roadmap” of how they planned to deal with DM policy normalization. That, combined with political turmoil, an escalating civil war (and yes, that’s what it is), and pressure on EM in general has led directly to further weakness for TRY:
We bring this up because Turkey, like Brazil, is a country to keep an eye on and not only because of the prominent role it will ultimately play in deciding the fate of Syria’s Bashar al-Assad, but because much like Brazil, things seem to get worse by the day both economically and politically. Take Thursday for instance, when inflation came in hot, prompting Goldman to suggest that the central bank had indeed missed its window. Here’s Goldman:
Headline and core inflation accelerated sequentially in August, on broad-based price increases. This trend will likely continue, as renewed exchange rate weakness passes through to domestic prices in the coming months, and food disinflation loses momentum. We continue to forecast end-2015 CPI at 8.2% but with moderate upside risks.In our view, the CBRT may have missed an opportunity to start normalising/simplifying its policy framework by keeping all policy rates unchanged in the August MPC meeting. This raises the risk of earlier and more aggressive rate hikes than we have been forecasting. We reiterate our long-held Conviction View to own Turkey protection, through 5-year CDS spreads.
And a bit more from Credit Suisse:
We are revising our headline inflation forecasts higher. Following the lira’s depreciation in August and the recent upside surprises to food price inflation, we are revising our end-2015 inflation forecast to 8.6% from 7.8% previously and our end-2016 inflation forecast to 7.4% from 7.2% previously.
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