Commerzbank’s Tatha Ghose says their worst-case scenario materialised after the Turkish central bank left policy unchanged, relying on FX intervention and ad hoc liquidity tightening instead of rate hikes. He argues underlying disinflation has stalled, inflation expectations are rising, reserves are depleting, and market skepticism is growing. Commerzbank now forecasts USD/TRY at 55.0 by year-end.

CBT inaction points to renewed Lira pressure

“Our worst-case scenario materialised at yesterday’s Turkish central bank (CBT) meeting: the central bank chose not to tighten monetary policy, relying on the argument that things were steadily improving fundamentally, and that recent geopolitical developments will only act as external disturbances, which should be “watched” for risk factors, but not much else.”

“Core inflation momentum remained far too high, and the improvement in the current account had begun to reverse as policy had been eased prematurely. In that context, the war simply exposes an already weakening framework rather than creating a fundamentally new problem.”

“This situation is likely to be followed by renewed pressure on the lira and more noticeable rate of depreciation. The annualised rate of depreciation since the beginning of April works out to 47%.”

“We expect USD/TRY to reach 55.0 by year-end, compared with market expectations of around 52.0.”

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