USD/TRY analysis: lira outlook as Turkish inflation soars

September 04, 2023 12:00 AM PDT | By Invezz

USD/TRY analysis: lira outlook as Turkish inflation soars — Image source: Invezz

Turkish inflation jumped in August

Consumer and producer inflation continued soaring even as the Central Bank of the Republic of Turkey (CBRT) continued boosting rates. According to the statistics agency, the headline CPI rose by 9.09% in August, higher than the median estimate of 7.0%.

This inflation translated to a year-on-year increase of 58.94%, the highest level in months. It was a bigger increase than the median estimate of 55.90% and July’s 47.83%.

Further data revealed that core CPI, which excludes the volatile food and energy prices, jumped from 56.1% in July to 64.8% in August.

The producer price index (PPI) also continued rising, signaling that Turkish businesses are struggling. The PPI rose by 5.89% on a MoM basis, leading to a YoY increase of 49.41%.

These measures mean that the actions of the CBRT are not working to lower inflation and the situation could worsen as crude oil prices rises. The bank decided to hike interest rates to 25%, the highest level in years. Most analysts were expecting the bank to hike to 20%, as I wrote here.

The Turkish economy is going through major headwinds as key sectors like manufacturing slows. These sectors are being offset by the tourism industry, which is booming.

The most recent numbers show that the Turkish economy expanded by 3.8% in Q2. It expanded by 3.5% on a YoY basis. Analysts expect it to slow further since these gains were helped by pre-election stimulus measures like tax and interest rate cuts.

USD/TRY forecast

The USD to Turkish lira exchange rate has been in a strong bullish trend in the past few decades. This rally happened because of the actions by President Erdogan and the CBRT.

On the daily chart, the pair is hovering slightly below the year-to-date high of 27.32. It remains above all moving averages while the Awesome Oscillator has moved below the neutral level.

Therefore, the outlook for the USD/TRY exchange rate is bullish, with the next target being 27.32. A break above that level will see the pair soaring to the psychological level at 28.

The post USD/TRY analysis: lira outlook as Turkish inflation soars appeared first on Invezz.

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