In December, Turkey’s inflation rate unexpectedly dropped from 47.1% to 44.4% year-on-year, falling below market expectations. This surprising data has been seen as a positive sign for the central bank, following the recent interest rate cuts. ING’s FX analyst, Frantisek Taborsky, points out that there was indicated downside risk by inflation numbers from Istanbul. The month-on-month rate also decreased from 2.2% to 1.0%, which was lower than the market’s expectation of 1.6%. This allows the central bank to continue its cutting cycle at the January meeting.
After the central bank’s first rate cut last week, the market reacted strongly, especially at the front of the OIS and bond curve. Despite this, analysts believe that there is still room for more cuts to be priced in, particularly in this segment of the curve. The Turkish lira has stabilized in recent days after holiday volatility and is now returning to its weakening trajectory seen in previous weeks. Despite the start of the FX carry cutting cycle, the lira remains attractive to investors, which is expected to keep market attention strong throughout the year.
The drop in inflation rates is seen as a positive sign for the economy, as it indicates that the central bank’s measures to control inflation may be working. This news has been met with optimism by investors, who are now looking forward to further rate cuts in the future. The Turkish lira, despite its recent stability, is still considered attractive to investors due to the potential for future cuts in interest rates. This attractiveness will likely continue to draw market attention to Turkey this year.
Overall, the downward trend in inflation rates in Turkey is a positive development for the economy and investors. The central bank’s decision to start a cutting cycle has been met with approval by the market, and there is potential for further rate cuts in the future. The Turkish lira’s attractiveness to investors is expected to remain high, despite its recent stability. As the year progresses, all eyes will be on Turkey as investors continue to monitor the economy and the central bank’s next moves.
