Slowing Inflation & Prospects for Interest Rate Cuts Don’t Prevent Turkish Lira from Rising

The Turkish lira rose today despite slowing inflation and prospects for interest rate cuts from the nation’s central bank.
Turkey’s annual inflation rate dropped to 15.7% in June from 18.7% in the previous month, touching the lowest level in a year. Furthermore, it was the steepest decline in eight months. And on top of that, the annual core inflation rate slowed to 14.9% in June from 15.9% in May. It was the lowest rate since July of the last year.
Slowing inflation reinforced the outlook for interest rate cuts from Turkey’s central bank. Carla Slim, economist at Standard Chartered, said:

The June CPI print helps pave the way for the Central Bank of the Republic of Turkey (CBRT) to kickstart its easing cycle at the 25 July MPC with a 100bps cut.

We have been more cautious than others in our rate cut call – we see a 200bps cumulative cut in 2019 – given turbulent markets and political noise relating to the March local elections, the Istanbul mayoral re-run and the S-400 anti-missile system deliveries.

USD/TRY fell from 5.6523 to 5.6324 as of 16:02 GMT today, and its daily low was at 5.6083. EUR/TRY declined from 6.3906 to 6.3502, touching the session minimum of 6.3266 intraday.

If you have any questions, comments, or opinions regarding the Turkish Lira, feel free to post them using the commentary form below.

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