TRY: Another Lira negative development – Commerzbank

The Turkish Lira (TRY) exchange rate remains on a steady depreciation path, especially against non-USD currencies. Against a 50-50 basket (USD and EUR), its depreciation rate is quite rapid –c.43% annualised. Since that writing, the US Dollar (USD) has rebounded somewhat and this makes the Lira’s depreciation clear also in USD/TRY terms (USD/TRY breached the 40.60 mark yesterday), Commerzbank's FX analyst Tatha Ghose notes.

Lira under pressure as trade deficit widens

"On the fundamental front, there was further bad news yesterday in the shape of trade data for June: the external trade deficit widened significantly in June (by 39% year-on-year) to US$ 8.2bn, marking the third successive deterioration. After seasonally adjusting the trade data, we found that there was a sharp month-on-month drop in exports, while imports increased. This picture is the opposite of what we might conclude if we were only looking at (misleading) year-on-year figures – in year-on-year terms, imports were up 15.2%y/y, driven by 32.2%y/y increase in consumer imports, while exports were also up c.8%y/y."

"The worse performance of exports was confirmed even by year-on-year data. But crucially, the increasing imbalance in terms of large consumer goods imports (as opposed to capital goods imports) also makes for a structurally weaker story. The trade imbalance stems from still robust domestic demand, which raises question marks about how effective CBT’s tight monetary stance has been in cooling and re-balancing the economy."

"Taken together with other recently observed balance of payments indicators, such as the continued decline in international reserves (net of swaps) in June and the re-widening net FX position of corporates, these trade figures contribute to an unfavourable backdrop for the Lira."