Turkish Lira: Inflation expectations outpace CBRT forecasts – Commerzbank

Commerzbank’s Tatha Ghose revisits Turkish inflation dynamics, noting seasonally-adjusted price momentum above 2% m/m and warning that disinflation is unlikely. Market participants have raised year-end Consumer Price Index (CPI) expectations to 29.5% y/y, above Central Bank of the Republic of Türkiye's (CBRT) 28% forecast. Ghose argues CBRT repeatedly chases private forecasts, undermining credibility, while persistent high monthly inflation keeps the Turkish Lira (TRY) under pressure after breaking 48.10 against the US Dollar (USD).

CBT credibility and lira pressure

"Turkey’s seasonally-adjusted inflation momentum was still running faster than 2%m/m, which makes disinflation a highly unlikely outcome in the medium-term. The central bank’s (CBRT’s) latest market participants survey now adds another uncomfortable detail: market participants have lifted their year-end inflation forecast further to 29.5%y/y."

"The market has not moved down towards CBRT’s forecast – CBRT has moved towards the market. This is the usual pattern every year: CBRT begins with a good-looking year-end forecast, then progressively revises it higher as the horizon approaches and the original number becomes unbelievable."

"This matters for credibility. A central bank forecast is supposed to help anchor expectations, not merely capitulate with a lag."

"If private forecasters repeatedly move first, and CBRT only catches up at scheduled Inflation Report rounds, then the market will eventually treat inflation reports and mid-term plans as presentation documents rather than genuine forecasting tools."

"Meanwhile, the underlying data still offer no comfort: CBRT’s own seasonally-adjusted July estimate showed headline CPI rising by 2.3%m/ m, with services up by 2.9%m/m. Such a rate of fresh price increase remains incompatible with medium-term targets. The lira has recently broken through the 48.10 level against the dollar and will continue to be under pressure."