The Turkish lira, in focus this week, is expected to remain driven by developments ahead of the release of August CPI. The market consensus calls for a slight slowdown to 31.6% year on year, but the timing of resumed rate cuts by the monetary authorities remains uncertain.
Last week, the Turkish lira/yen pair traded narrowly, centered around the ¥3.29 level. The central bank resumed providing funds through one-week repo auctions, which had been suspended, in response to surging energy prices. However, this did not amount to an unwinding of monetary tightening, leaving few catalysts for lira buying.
The focus this week is the release of August CPI. The market consensus is for a year-on-year increase of 31.6%, a slight slowdown from July’s 31.75%. Inflation is expected to continue easing, but it remains well above the central bank’s year-end inflation forecast of 28%.
The central bank has accordingly resumed providing funds, but the timing of resumed rate cuts remains uncertain. Premature rate cuts could weaken the lira, while further disinflation could bolster confidence in the currency.
The expected range for next week is ¥3.270–¥3.325, with the underlying trend characterized as weak and range-bound. The key points to watch this week are the 3 September release of August CPI and developments in major related indicators.