Want volatility? Look no further than the Turkish lira. As European markets opened, TRY took off on a roller-coaster worthy of Brighton Beach Cyclone, because investors are struggling with the meaning of President Erdogan’s re-election. Although his AKP party lost its parliamentary majority, with his ally MHP he can control parliament. USD/TRY rose to 4.6836 in seconds: TRY remains highly volatile. Don’t try to catch this falling sword.
Turkey large external debt makes it vulnerable to the USA’s rising interest rates. In theory Turkey should tighten its monetary policy, but this is uncertain. Erdogan has indicated that he should control monetary policy, and his bias is towards growth. Manufacturing purchasing remains weak, yet there is strong inflation. Data released today say consumer prices surged 2.61% monthly and 15.39% annually. Producer prices rose 23.71% annually. So the Central Bank is caught between this inflation and the pressure to ease rates. So, we are not hopeful that solid structural reforms will materialize.
By Peter Rosenstreich
