The lira depreciated in value to 5.3952 versus the American greenback at around 15:00 GMT, according to figures from Bloomberg, from Monday’s close of 5.2503. The exchange rate drop comes as annual inflation was brought down to 21.62 percent from a 15-year high in November, with the consumer price index fell 1.44 percent month-on-month. A string of tax cuts, discounted products and a stronger lira, which had been boasting a better performance in recent weeks from falling oil prices, are thought to be the main influencers behind the inflation drop. But the data, released today by the Turkish Statistical Institute, has raised investor concerns over the central bank lowering rates next week.
Timothy Ash, a strategist at Blue Bay Asset Management, said: “Lira has struggled post the good inflation numbers - and I do sense its around concern that the CBRT will take this as the green light to ease prematurely.” Ankara has cut taxes on consumer products such as vehicles, furniture and white goods and encouraged shops to offer at least 10 percent discounts until the end of the year. Muammer Komurcuoglu of Is Investment said: "Tax cuts for automotive, white goods and furniture sectors were the key factor bringing down inflation. "We expect a limited increase in December inflation as the initial impact of tax cuts wane."
Transportation prices slid 6.46 percent while food and non-alcoholic beverage prices fell 0.74 percent, the data showed. The producer price index fell 2.53 percent in November for an annual rise of 38.54 percent. At its worst, the Turkish lira lost around 47 percent of its value against the US dollar in August while inflation surged to 25.24 percent in October. The lira has recovered in recent months after a massive 6.25 percentage point rate hike in September and an improvement in relations with the United States. Turkey's economy is seen shrinking 1.4 percent in the fourth quarter and is officially entering a recession - defined as two consecutive quarters of negative growth - in the first three months of 2019, according to a Reuters poll in October.
As the economy slows and inflation falls, prospects for further rate hikes are now off the table, said Jason Tuvey, senior emerging markets economist at Capital Economics. He said: ”With political pressure on the central bank to loosen policy likely to mount, there's a growing risk that policymakers decide to loosen policy even earlier, and more aggressively, than we currently anticipate.” The Turkish lira was also impacted today by higher oil prices. Benchmark Brent crude oil jumped by $1.89 to a high of $63.58 before easing back to trade around $63 by 1240 GMT. US light crude was up $1 at $53.95 after earlier gaining more than 3 percent to an intraday high of $54.55.