Turkey’s September Consumer Price Index was quite a lot higher than expected, casting doubt on the viability of long lira positions, but many traders are still holding on to these positions via FX and options.
The last Reuters poll in July suggested the CBRT would retain the 50bps interest rate before looking to trim it in Q4, so Thursday’s data might raise questions about the effectiveness of current economic policies. But in the lira’s favour, the central bank may need to take further action to control inflation or at least support the lira while allowing current measures more time to work.
State banks remain active in limiting lira depreciation and, with FX reserves replenished, they have sufficient resources to maintain this stance for the time being.
Given President Tayyip Erdogan’s historic stance against high interest rates, lira longs must be wary of any political rhetoric that could heighten the risk of easing before inflation is fully tamed.
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