Sovereign Analysis /

Turkey’s inflation and balance of payments crisis in charts

  • The TRY has been one of the worst performing EM currencies ytd, driven by President Erdogan’s aversion to rate hikes

  • Inflationary and external pressures will not abate without a reversal of Turkey’s accommodative monetary policy stance

  • We illustrate Turkey’s growing inflation and BOP pressures in 23 charts; retain Sell on TRY and domestic debt

Turkey’s inflation and balance of payments crisis in charts
Tellimer Research
7 June 2022
Published byTellimer Research

President Erdogan and the CBRT have maintained their aversion to rate hikes even as Turkey’s inflation and balance of payments (BOP) dynamics continue to worsen, setting the lira up for continued weakness as tight global financial conditions are exacerbated by domestic policy mistakes.

Late last month, the CBRT opted to hold its policy rate at 14% even as inflation continued to spiral, reaching 73.5% yoy in May and pushing real rates to -70%, by far the lowest among our sample of 66 emerging markets (Sri Lanka is second lowest at -25% and the unweighted average is -4.75%).

Nonetheless, Erdogan has remained steadfast in his insistence that there is no connection between low rates and high inflation, saying recently that only "illiterates or traitors" make such claims and announcing yesterday that "This government will not raise interest rates. We will continue cutting them." The comments triggered a renewed lira sell-off, with the TRY dropping 2% so far this week at the time of writing.

In the following note, we will illustrate Turkey's growing price and external pressures in a series of 23 charts. Barring a significant monetary policy shift, which seems unlikely, we think the TRY will continue to underperform (it is down 20.6% ytd versus +0.2% for the JP Morgan EM Currency Index, per Bloomberg data, roughly in line with the performance of the LAK and GHS and surpassed by the LKR’s 44% slide). We retain our Sell recommendation on the TRY and local currency government debt.

Real rate

Inflation expectations

Price indicators

Lending rates



Gold imports

Trade balance

Import and export growth


Current account balance

Current account NSA

Current account ex energy

Current account % of GDP

Balance of payments

Net FX reserves

Official reserves

Non-resident flows

Non-resident stock

External debt

Rollover ratios

FX interventions

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