TRY: Changes in monetary policy framework but no changes for FX - ING

During a press conference yesterday to present its new inflation report, the Central Bank of Turkey announced several changes to its monetary policy framework, ING's FX analyst Frantisek Taborsky notes.

CBRT expects upside inflation risks in food and service prices

"Expected inflation for the end of the year remains at 24%, and 16% for 2026, below our forecast (29.5% and 19.4%). The central bank will now announce an interim inflation target in its inflation reports, which is set at 24% and 16% for the end of this year, the same as the CBT's inflation forecast. This may cause some market misinterpretation, but on the other hand, it should better indicate the central bank's stance since it could differ in future."

"Looking further ahead, the central bank sees upside inflation risks in food and service prices. Although further rate cuts are expected, the size of the rate cuts is less clear, and 300bp in July may not be the framework for the coming meetings. However, the latest inflation print was favourable, and there should be enough room for at least one more 300bp cut in September in our forecast. Later, however, we expect a slowdown to a 250bp pace, ending the year at 35%. The August inflation expectations figures today may tell us a little more."

"For FX, however, the story here does not change much. Although CBT rate cuts should reduce the attractiveness of TRY carry trades, we are still in a safe zone for now, and at least this year, this should not be a problem. At the same time, it seems that the central bank has its FX policy fully under control and is not considering any changes here, at least in the short term. We believe that, at least through the summer months, USD/TRY will continue to grind gradually higher, while still offering a generous FX carry for long TRY positions, which remains our favourite currency play."