Turkey isn’t out of the woods yet.
Things have calmed down a bit in the epicenter for emerging market pain, but September inflation data (out Wednesday) suggests the country’s woes are far from over.
Inflation jumped to 24.5% in September, printing above even the highest analyst estimates (Bloomberg median was 21.1% YoY increase):
If you think back to last month’s inflation data, the real shocker wasn’t CPI, but rather PPI, which surged to a truly laughable 32% in August. Well, that got worse in September, with producer prices soaring 46% YoY last month:
Turkey of course delivered a larger-than-expected rate hike last month, alleviating concerns that the central bank is completely beholden to Erdogan, but as ever, nobody should pretend that CBT’s hands aren’t tied.
The lira sold off on the news, but the losses don’t look too bad, all things considered:
Note from the CPI number that real rates in Turkey are now negative again, so this calls for another rate hike at the next meeting or, preferably, before.
For now, the market appears to be taking a wait and see approach based on hopes that detained Pastor Andrew Brunson will soon be released.
Brunson’s lawyer applied to Turkey’s Constitutional Court for the priest’s release on Wednesday. The Pastor’s next hearing is scheduled for October 12.
“The market is holding in I guess on the assumption that this number is so bad, it is almost good, in terms of leaving the CBRT with no option but to hike again on Oct 25, and also [on the] assumption of positive news on Oct 12 around Brunson”, BlueBay’s Tim Ash said Wednesday, adding that it might be time “to reflect on the fact CBRT has a 5% inflation target, so headline is now five times this.”