At 2.47% month-on-month, consumer price inflation in Turkey was slightly above the median of analysts' expectations (2.29%). Under normal circumstances, comments on yesterday's publication by TurkStat would be deployed in a similar way. However, nothing about inflation in Turkey is normal, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

Lira continues to depreciate significantly in nominal terms

“With such high inflation, measuring it is particularly difficult. Reporting the rate to two decimal places is therefore nonsensical. The official figures enjoy little public trust. The only problem is that when TurkStat reports lower inflation rates than in the past, nobody believes it, and lower figures do not change price-setting behavior. A dynamic of falling inflation is impeded.”

“On the other hand: assuming that inflation is measured reasonably correctly, previous month's rates of around 2½% imply that monetary policy (with a key rate of 50%) is now clearly restrictive. So, it's actually time for the first interest rate cuts. But this phase is particularly tricky. After the Lira crisis of 2018, the central bank had cut its key interest rate far too quickly and far too aggressively, sowing the seeds for the next, even bigger wave of inflation and depreciation.”