Key Moments
- Commerzbank’s Tatha Ghose notes that USD/TRY has followed a mechanically managed depreciation path of about 20% on an annualized basis in recent months.
- The Central Bank of the Republic of Türkiye (CBRT) has reportedly begun a rate-cut cycle while also allowing controlled Lira weakening through FX intervention.
- With domestic inflation in the 30%-35% range, Commerzbank argues that the current nominal depreciation pace is insufficient to remove long-term devaluation risks.
CBRT Signals Faster Depreciation Strategy
Commerzbank analyst Tatha Ghose highlights comments from Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan, who reportedly told investors that policymakers are permitting a quicker pace of Lira depreciation to avoid a more abrupt adjustment later. According to Ghose, Karahan linked this stance to softer economic activity, suggesting that reduced inflation pass-through makes the current environment suitable for altering the currency’s trajectory.
Ghose challenges this rationale, pointing out that the exchange rate behavior of USD/TRY does not show a clear acceleration in recent days or weeks. Instead, the pair has remained on what he describes as a steady and rapid weakening path for the Lira.
Mechanically Managed FX Path
Ghose estimates that the recent decline of the Lira against the US Dollar corresponds to an annualized depreciation rate of around 20%. He notes that this pattern appears highly controlled, with the CBRT and state-owned banks playing an active role through foreign exchange interventions.
According to the analysis, intraday trading in USD/TRY often exhibits a distinctive structure, with periods of stability interrupted by sudden moves once specific levels are breached. Ghose reiterates his view that this pattern reflects a managed regime rather than what would conventionally be considered a free-floating exchange rate.
| Factor | Commerzbank Observation |
|---|---|
| USD/TRY trend | Roughly 20% annualized depreciation in recent months |
| Policy stance | CBRT in a rate-cutting cycle alongside FX management |
| Domestic inflation | In the 30%-35% region |
| Real exchange rate effect | Real appreciation persists despite nominal depreciation |
Rate Cuts, Inflation, and External Imbalances
Ghose underscores that the CBRT has already moved into a rate-cutting phase. He notes that this shift may be presented as a tactical strategy designed to facilitate what officials call “healthy” Lira depreciation. However, he argues that combining rate cuts with a guided weakening of the currency does not address the structural challenges facing the economy.
He emphasizes that inflation eased for only a single month, and this occurred in what he characterizes as a globally pro-inflationary backdrop. In his view, the decision to lower interest rates amplifies the vulnerability of the Lira rather than mitigating it, as underlying inflation pressures and balance of payments issues remain unresolved.
Real Appreciation and Devaluation Risk
Despite the 20% annualized nominal depreciation, Ghose points out that inflation running in the 30%-35% range implies that Turkey’s real exchange rate has actually been appreciating. This means that the pace of nominal weakening has not kept up with domestic price growth.
As a result, Ghose contends that the current depreciation trajectory is not sufficient to correct the real exchange rate or to reliably steer the currency toward what might be regarded as fair value. He therefore disputes the CBRT’s assertion that allowing a faster, controlled decline in the Lira now will successfully avert the danger of a more pronounced devaluation in the future.
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