Turkish Lira Extends Rebound Despite Higher Inflation, Bearish Locals

The Turkish lira is rallying against some of its major currency peers on Thursday, despite concerning macro data that could further force locals to scoop up more US dollars. The lira has staged a significant rebound over the last month as financial markets showcase their confidence in the nation’s push to a more orthodox monetary policy. But the resurgence in the lira has enabled the locals to scoop up dollars, highlighting that not everyone is convinced of the currency’s upward trajectory or the government’s market-oriented reforms.

According to the Turkish Statistical Institute, the consumer price index (CPI) recorded its fourth consecutive monthly gain, rising 2.3% to a two-year high in November. In Ankara, price inflation has exploded, skyrocketing to an annualized rate of 14.03% last month, up from 11.89% in October. Food and beverages soared to an 18-month high, while other essentials, including housing and utilities, popped more than 9%. Transportation and health care also increased by 18.67% and 16.25%, respectively.
Producer prices also increased last month. The producer price index (PPI) rose 4.08%, up from 3.55% in October. The annual PPI spiked to an 18-month high of 23.11%, driven by upward pressure on manufacturing, mining, and water supply prices.
In other economic data, the third-quarter gross domestic product (GDP) increased 15.6%, up from the record 10.8% contraction in the second quarter. Turkey’s economy saw the biggest gains in financial and insurance activities, construction, agriculture, real estate, and industry.
In October, the trade deficit widened to $2.373 billion, up from $1.765 billion from the same time a year ago. Exports jumped 5.6%, while imports advanced by 8.4%.
The Istanbul Chamber of Industry manufacturing purchasing managers’ index (PMI) slipped to 51.4 in November, down from 53.9 in October — anything above 50 indicates expansion. This is the lowest reading since May, triggering consternation over the pace of recovery in the nation’s fragile manufacturing sector.
The central bank reported that foreign exchange reserves came in at $43.9 billion in the week ending November 27. Forex reserves stood at $43.71 billion in the previous week.
In recent weeks, the lira has staged a noteworthy comeback, mostly driven by policy tightening and renewed confidence over the country’s leadership. But while foreign investors appear confident in Turkey, the locals do not share that level of enthusiasm as they have been using the lira’s latest strength to accumulate the greenback and gold. Over the last month, Turks have been buying approximately $4 billion worth of gold and FX, Reuters reports.
The USD/TRY currency pair declined 1.08% to 7.7675, from an opening of 7.8546, at 16:53 GMT on Thursday. The EUR/TRY tumbled 0.86% to 9.4323, from an opening of 9.5147.
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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