The Kapali Carsi

Turkish Data Support No Easing

As I argued in my most recent Hurriyet Daily News column on Monday, the state of the economy will be an important factor in whether the Central Bank of Turkey (CBT) will ease further. The basic arguments I made there were that: 1. Data are not weak enough to warrant easing. 2. Unless capital flows pick up, it will be very hard for the CBT to ease without putting pressure on the lira. 3. The inflation outlook is still challenging. We had data relating to the first two during the first three days of the week.

Monday’s industrial production is quite strong across the board except durables (have a look at the Citi report if you’d like more details)

The CNBC-e consumption index for June, which was released on Tuesday, is not bad, either:

I was mentioning in the addendum to the column that it wasn’t likely that the contribution of external demand¬† to growth would be as high in the second as in the first quarter, and May trade indices do not disappoint (me, as they support my view):

This means the improvement in the trade balance has come mainly from the terms of trade, which is probably mostly because of the easing in oil prices.

Last but not definitely not the least, the May current account deficit came in much better (i.e. lower than expected) today. While you may read the details in the Citi note, let’s look at the capital/current account ratio I mentioned in the column:

This looks like a major improvement, but before you bring out the party gear, note that USD 1.1bn of the FDI inflows is coming from the TAV- A√©roports de Paris deal. Other than that, there is a minor improvement (from 28.2 to 28.9 percent) in the share of FDI and long-term borrowing in capital flows. It is also noteworthy that net errors and omissions is normalizing, but that’s a for a separate post.

All in all, these three days of data don’t warrant me to change my call that the Bank won’t ease soon and that the effective funding rate won’t go below 8 percent. But be warned that there are some misguided souls who dare to disagree with me, as a recent Bloomberg story notes. No, they don’t note that anyone who disagrees with the great Emre Deliveli is misguided; they are simply reporting that UniCredit is arguing the Bank will ease… OK, time for my pills:)…

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