TRY: Frequent resets - Commerzbank

Turkey's balance of payments data for July was rather encouraging. The current-account balance was only slightly in deficit (seasonally-adjusted) and reversed some of the strains observed in the preceding months, Commerzbank's FX analyst Tatha Ghose notes.

Lira to keep depreciating at a fast pace

"It still cannot be viewed as a clear _improvement_ to $1.8bn surplus like Minister Mehmet Simsek implied in his tweet following the data - because July and August are tourist season peaks and frequently record strong performance - adjusted for seasonality, the reading still works out to a deficit. Nevertheless, as the chart below shows, the current-account trend was improving in recent months."

"What is more, July recorded a particularly strong month for capital inflows: with net portfolio inflow in the $5bn region and net bank sector inflow in the $10bn range. Sentiment was clearly calming down from the politically volatile February-April. It is a pity that things had to reverse 180 degrees so quickly."

"After the court ruling on the Istanbul CHP, FX intervention once again became a staple of policy management, while the central bank has continued to cut rates in large steps. Such frequent resets to investor perception eventually takes a toll on broader asset performance. We forecast the lira to keep depreciating at a fast pace (currently, 42% annualised on a basket basis)."