Key Moments
- Turkey’s September headline CPI eased to 29.7% year-on-year from 31.51%, with a 1.8% month-on-month increase that undershot consensus expectations.
- Commerzbank’s Tatha Ghose sees the latest inflation data as paving the way for a 100 basis point rate cut by the central bank later this month.
- The Turkish Lira remains heavily supported by official intervention, and a rate cut alongside potential renewed inflation later this year are expected to keep TRY under pressure.
Inflation Data Delivers Upside Surprise
Tatha Ghose at Commerzbank notes that Turkey’s September Consumer Price Index (CPI) came in below the 30% year-on-year threshold, with a softer monthly increase, creating room for the central bank to consider monetary easing of 100 basis points. He highlights that the Turkish Lira (TRY) remains tightly managed through official intervention, limiting its ability to derive lasting support from the improved inflation figures. A combination of a rate cut and a possible renewed pickup in inflation later in the year is expected to leave the currency under ongoing pressure.
Details of September CPI Performance
“Turkey’s September CPI data surprised pleasantly: headline inflation fell to 29.7% y/y from 31.51% y/y, while prices increased by 1.8% m/m – softer than consensus forecasts had implied. Core C inflation moderated to 28.7% y/y, but the index still rose by 2.1% m/m. As usual, we do not attach much significance to the year-on-year decline, which was heavily flattered by base-effects, but there is no question that month-on-month rate of increase (after seasonal adjustment) also decelerated noticeably.”
| Indicator | September Level | Previous / Comment |
|---|---|---|
| Headline CPI (y/y) | 29.7% | Down from 31.51% y/y |
| Headline CPI (m/m) | 1.8% | Softer than consensus forecasts |
| Core C Inflation (y/y) | 28.7% | Moderated from prior level (not specified) |
| Core C Inflation (m/m) | 2.1% | Index continued to rise |
Policy Outlook and Central Bank Reaction Function
“Nevertheless, this data point creates the perfect background for Turkey’s central bank (CBT) to cut rates by 100bp later this month. Inflation has dropped below 30% y/y for the first time in almost five years, allowing policymakers to implement what they had desperately been seeking.”
Lira Dynamics and Intervention Concerns
“The lira was unable to benefit from the better data yesterday because it is anyway propped up by central bank and state bank intervention. Such intervention can smooth the path, but cannot alter the direction. A rate cut and potentially re-accelerating inflation later this year will keep the exchange rate under pressure, in our view.”
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