Page 9 - TURKRptSept19

2.0 Politics
2.1 INSIGHT: Official inflation hops up to 16.65% but
that’s not enough to blow Erdogan’s plan off course
Turkey’s official consumer price index (CPI) inflation rose slightly to 16.65% in July from 15.72% in June, the statistical institute TUIK said on August 5. The market expectation for the July reading was for around 16.9%.
The TUIK will likely find the grounds to on September 3 announce a lower headline CPI reading for August to pave the way for another chunky rate cut from the monetary policy committee meeting scheduled for September 12. As long as the Turkish lira remains stable, the central bank will follow up on last month’s 425bp rate cut with a further aggressive easing, Jason Tuvey of Capital Economics said in a research note.
Meanwhile, the story of high real rates in Turkey has eroded fast despite official inflation declining sharply in recent months prior to July. “Real rates [in Turkey] are now just over 300bps, versus 800bps in Ukraine, 2,000bps in Argentina, 425bps in Mexico, 225bps in SA, 280bps in Indo, 270bps in India, 275bps in Malaysia, 700bps in Ghana, 350bps in Kazakhstan. And all these run much more orthodox monetary policies,” Timothy Ash of Bluebay Asset Management said in an emailed note to investors.
The story of favourable global conditions has also partially melted away following the latest escalation in the trade war between the US and China, but the lira remains below 5.60 to the dollar amid sharp depreciations in emerging market currencies. “The falls in EM currencies in this latest leg of the trade war have been large compared with previous episodes,” William Jackson of Capital Economics said on August 5 in a research note. The lira was the exception thanks to the strong role taken by the government.
The Turkish lira was last month the best performing of the world’s most-traded currencies against the dollar, gaining 4.8%, according to Bloomberg.
"Just please don't say ‘positioning...’" “Since trade tensions escalated a week ago the Turkish Lira has outperformed notably. High carry peers like South Africa's Rand and Argentina's Peso are down. I'm curious what explanations people have. Just please don't say ‘positioning...,’ Robin Brooks of the Institute of International Finance (IIF) tweeted on August 8.
Noting a regathering of storm clouds in Turkey’s macro picture, Brooks six days earlier, wrote on Twitter: “Underlying dynamics in Turkey's trade balance aren't great. Export growth is being held back by a weak Euro zone and escalating global trade tensions. And import compression, the main channel of current account adjustment after the EM sell-off last summer, is fading rapidly.”
August 7, meanwhile, brought a tweet from Steve Hanke, the applied economist at Johns Hopkins University known for his deep scepticism over the way many emerging economies calculate their inflation rates: “Raising #Turkey’s FX reserve requirements & withdrawing another $2.1b worth of liquidity from the market are bandaids. They won’t save the half-baked #lira. @RTErdogan’s misguided economic policies do nothing to address the underlying weakness of the lira.”
Alas, until somebody addresses the underlying weakness of Turkey’s claim to run market economy institutions, for tens of millions of ordinary Turks sidelined by Erdogan’s polarising power games and a real economy wracked by recession, Turkey will remain an unpitying economic basket case.
9 TURKEY Country Report September 2019 www.intellinews.com