Questions may arise on what actually triggers the current Turkish lira recovery phase despite the latest announcement of US
sanctions against the Turkish economy. Some might say that penalties are softer than initially thought, yet it seems that the recent
efforts from the Turkish state to stabilize TRY is likely to have a limited effect. As Turkish forces incursion advance through northeast
Syria to neutralize the Kurdish militia in the region, it seems that Turkish President Recep Tayyip Erdogan is not expected to back down in
view of the current political situation, paving the way for new trade sanctions and putting pressure on the Turkish Central Bank to make
further cuts

Deepening economic woes are weighing on the lira following the release of weak industrial production figures in August, with month-on-month
and year-on-year output falling by -2.80% (prior: 4.30%) and -3.60% y/y respectively. Therefore, the latter questions the timing of the
CBT next easing steps, as its latest assessment of the Turkish economy for a “moderate recovery” rather reduced the scope for further
reductions. We would rather suggest that the CBT is likely to adopt a more dovish bias next week as current US sanctions on Turkish officials
and an increase in tariffs imports from 25% to 50% should maintain TRY under continued pressure. In this context, the interventions of
Turkish state-owned banks, which amounted to over $3.5 billion last week, should not be sufficient to limit the decline.

USD/TRY is currently trading at 5.9125, approaching 5.9380.

By Vincent Mivelaz

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