Turkey is going through an inflationary crisis as the latest numbers point to a disastrous situation for a country that has abandoned a more orthodox way to manage fiscal and monetary policy. The lira weakened against the US dollar and the euro amid the recent data, potentially signaling that the currency will continue its descent for, at the very least, the remainder of the second quarter. Can the lira regain the confidence of the foreign exchange markets, or is all hope lost? According to the Turkish Statistical Institute (TSI), the annualized inflation rate climbed to 17.14% in April, falling short of the median estimate of 17.3%. This is still up from the previous reading of 16.19%, driven by higher prices for transportation, shelter, utilities, food, and apparel. On a monthly basis, the consumer price index (CPI) rose 1.68%, which was also below the market forecast of 1.8%. Producer prices continue to dominate the inflation story, with the producer price index (PPI) topping 35% year-over-year in April, up from 31.2% in March. Prices climbed for manufacturing, mining, electricity, and the water supply. The annualized PPI also reached the highest level since November 2018. On a per-month basis, the PPI rose to 4.34%. Ankara’s manufacturing sector slumped last month. The Istanbul Chamber of Industry Manufacturing purchasing managers’ index (PMI) reached 50.4, down from 52.6 in March — anything above 50 indicates expansion. This was the worst PMI reading since the beginning of the coronavirus pandemic, caused by disappointing performances in new exports, employment, output, new orders, prices, and business sentiment. With international headlines dominating the resurgence of COVID-19 infections in India, Turkey has been witnessing its fair share of new cases. Ankara is suffering from a seven-day average of more than 35,000, forcing policymakers to impose new lockdown measures. In total, Turkey has reported 4.88 million cases and a death toll of close to 41,000. This has market analysts warning that the country’s tourism sector will likely lose another summer, even if the lockdown results in reducing daily coronavirus cases to below 5,000 by the end of this month. Bulgaria, Germany, Great Britain, Iran, and Russia, which are the nation’s top tourist sources, have posted travel warnings to Turkey. The USD/TRY currency pair rose 0.12% to 8.2981, from an opening of 8.2885, at 13:50 GMT on Monday. The EUR/TRY advanced 0.5% to 10.0130, from an opening of 9.9795.

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The Turkish lira slumped to start the trading week, despite inflation levels continuing to slow from record highs. Despite the lira’s decline this year, the currency has stabilized against the greenback. Inflation continues to remain elevated in Ankara. According to the Turkish Statistical Institute (TSI), the annual inflation rate eased to 50.51% in March, down from 55.18% in February. This came in under economists’ expectations of 51.33%. The month-over-month inflation rate slowed to 2.29% last month, down from 3.15% in February. This came in below the market estimate of 2.8%. Producer prices also eased to 62.45% year-over-year, down from 76.61% in February. The producer price index (PPI) rose 0.44% from February to March. This comes after the Istanbul Chamber of Industry Manufacturing Purchasing Managers’ Index (PMI) advanced to 50.9 in March, up from 50.1 – anything above 50 indicates expansion. This suggested that the enormous earthquake did very little to affect the sector. “Renewed output growth in the Turkish manufacturing sector was a welcome development in March following the marked impact of the earthquake in February,” said Andrew Harker, economics director at S&P Global Market Intelligence, in the report. “Although some firms were still affected, the start of reconstruction efforts supported the overall return to growth. With new orders also up, we are hopefully seeing an end to the relatively soft conditions experienced by firms over the past year or so.” The trade deficit fell to $12.08 billion in February, up from -$14.2 billion. Both exports and imports declined to $18.63 billion and $30.71 billion, respectively. The preliminary trade numbers for March will also be released on Tuesday. Early estimates suggest that the trade gap will slide to $9.51 billion. The USD/TRY currency pair rose 0.32% to 19.2021, from an opening of 19.1782, at 16:08 GMT on Monday. The EUR/TRY advanced 0.76% to 20.9065, from an opening of 20.7480.

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The Turkish lira is sliding against its US currency counterpart on Tuesday as investors brace for the central bank’s policy meeting on Thursday. So far, the market is expecting that officials would leave interest rates unchanged, but the institution has surprised investors before. With rampant inflation and a deteriorating currency, can Ankara afford additional easing? Market analysts say that the central bank will leave its benchmark one-week repo rate at 14% after several months of cuts. The group is also expected to keep its overnight lending rate and overnight borrowing rate for January steady at 15.5% and 12.5%, respectively. As Turkey endures a currency crisis, forecasts for the state of the economy are coming in, especially on the inflation front. Last year, the annual consumer price index (CPI) increased to 36% in December. Recent projections suggest that the inflation rate will top 40% at the end of the first quarter and then 39% by the second quarter. However, government projections suggest that inflation will decline to below 27% by the end of the year and then to 15.4% in 2023. When assessing the broader economy, economists expect that the gross domestic product (GDP) growth rate will fall to 3.5% this year and rise to 4% in 2023. But the public is not lackadaisical. “Everything is so expensive,” Sevim Yildirim told the BBC at a local fruit market. “It’s impossible even to cook a main course for a family with these prices.” The USD/TRY currency pair surged 1.54% to 13.6519, from an opening of 13.4445, at 15:14 GMT on Tuesday. The EUR/TRY climbed 0.86% to 15.4696, from an opening of 15.3380.

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