World’s Worst Currency Likely Pushed Turkish Inflation to 12%

(Bloomberg) --

Turkish inflation likely marched higher in October, when the embattled lira shed value to finish as the world’s worst-performing currency.

Data due Tuesday will show consumer prices rose an annual 12%, edging up from 11.8% in September, according to the median of 17 forecasts in a Bloomberg survey. Monthly inflation is expected to reach 2.2% from 1%, another survey showed.

A slew of geopolitical risks, including Tuesday’s U.S. election, have in recent months helped collapse the lira, which had already been pummeled by steep monetary easing and a government-led credit surge to combat a coronavirus downturn.

“We expect the depreciation of the lira to lead to a rise in annual core inflation in October,” said Nihan Ziya Erdem, chief economist at Garanti BBVA Securities. “Even though the energy group pulls headline inflation down, we calculate that headline inflation will increase slightly on a yearly basis due to price increases in other groups.”

Retail prices in Istanbul rose 2.45% in October from the previous month, according to the Istanbul Chamber of Commerce. That was the highest monthly gain since August 2019.

Turkey’s central bank, which has been pursuing backdoor tightening to contain the currency’s losses rather than outright hikes to the benchmark rate, has raised its inflation projections for the end of this year by more than three percentage points to 12.1%.

Governor Murat Uysal surprised investors by holding the one-week repo rate steady last month while increasing the late liquidity window, a marginal source of lending originally intended for emergency funding. He said the regulator wouldn’t though ease off until inflation improves, citing the risk to price stability.

The lira lost 7.5% against the dollar in October, the most in the world and its steepest monthly decline since a currency crisis in 2018. It’s down nearly 30% since the beginning of the year, making it the weakest emerging markets currency after the Brazilian real.

Biden Factor Fuels Bet on Turkish Rate Increase as Lira Swoons

Uncertainty ahead of the U.S. elections has dampened appetite for riskier assets like the lira. In particular, Democrat challenger Joe Biden, who’s ahead in the polls, has vowed a more confrontational stance toward Ankara if he’s elected.

The Turkish government already faces possible U.S. sanctions over the purchase of a Russian missile system, and is engaged in territorial disputes in the eastern Mediterranean and the Caucasus.

©2020 Bloomberg L.P.