Turkish Lira: Inflation Risks Continue to Pressure TRY – Commerzbank

Commerzbank maintains a cautious medium-term outlook on the Turkish lira, with core concerns centered on the inflation trajectory rather than daily exchange rate fluctuations.

**Inflation May Reaccelerate**

According to Commerzbank analyst Tatha Ghose, Turkey's October consumer price index is expected to show a reacceleration in monthly inflation, climbing back above 2%. This suggests that the earlier easing in monthly price pressures may have been only a temporary phenomenon, with the lira's real purchasing power still facing erosion. The bank's assessment of the lira's outlook is built on the assumption that inflation moderation lacks sustainability.

**Tension Between Policy Rates and Real Rates**

Market signals indicate that Turkey's central bank has significantly raised interest rates since June 2023, yet the lira has continued to weaken, with the supportive effect of rate hikes on the exchange rate considered limited. Within this framework, even if nominal rates remain elevated, a resurgence in monthly inflation would compress real rate space, correspondingly diminishing the appeal of lira-denominated assets. Commerzbank's previous medium- to long-term forecasts for the lira have also leaned toward depreciation.

**Current Exchange Rate and Key Focus**

The USD/TRY pair is currently trading at 49.99443. This level itself does not constitute a directional signal, but combined with expectations of potential inflation reacceleration, the narrative of near-term lira pressure remains unchanged. Going forward, attention should focus on the actual October CPI release and its alignment with the central bank's rate path: if monthly inflation indeed returns above 2% as expected, market tolerance for policy regarding the lira will once again come into focus.

Overall, Commerzbank's view points in one direction—inflation risk is the primary source of pressure on the lira at present, rather than a single-event shock.