Turkish lira slides as inflation spikes to highest level in 15 years

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Turkey’s
currency slipped Wednesday after data showed inflation rising
a sixth straight month to its highest level in 15 years as a
deepening economic crisis in the country pressures prices.

The Turkish lira was down more than 1% against the dollar after
Turkey’s central bank
reported consumer prices in the country rose 24.5% in
September from a year earlier, the highest since President Recep
Tayyip Erdogan took power. Economists had forecast an increase of
21.1%. 

Berat Albayrak, Turkey’s treasury and finance minister and
Erdogan’s son-in-law, was quick to blame the inflation rate on
external factors and implied the crisis could abate by next
month. “The current trend will be broken in October,”
he said in an interview with a local news channel.

Conflicts between the central bank and government have pummeled
the lira this year. It has shed nearly 40% of its value since the
start of 2018 and is one of the worst-performing currencies of
the year. 

The central bank raised borrowing costs by 625 basis
points to 24% in early
September, despite backlash from Erdogan. The
president backs unorthodox policies like cutting
rates to curb inflation and
has increasingly tried to wield influence over
monetary policy since his reelection this year.

Analysts say they expect the central bank to increase rates
despite Erdogan and slowing economic activity.  

“We acknowledge these are strong arguments, but we think they are
not enough to refute the case for a hike,” Inan Demir, a senior
emerging markets economist at Nomura, said. 

An ongoing rift between Ankara and Washington over the detainment
of Andrew Brunson, an American pastor arrested in 2016
on alleged terrorism and espionage charges, has added to
economic concerns in the country. 

After NATO allies failed to make progress on negotiations for
Brunson’s release, the Trump administration doubled existing
tariff rates on Turkish metals and placed sanctions on government
officials. Brunson’s lawyer said he has appealed for release from
house arrest, according to
Reuters. The next court hearing is October 12.

“The markets’ focus will now turn to the next hearing in American
Pastor Brunson’s court case next week and a market-friendly
resolution may reduce pressure on the TCMB to hike,” Demir
said.

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