Turkey's currency slides as inflation spikes to its highest level in 15 years

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Turkey’s currency slipped Wednesday after data showed inflation rising a sixth straight month to its highest level in 15 years as a deepening economic crisis in the country pressures prices.

The Turkish lira was down more than 1% against the dollar after Turkey’s central bank reported consumer prices in the country rose 24.5% in September from a year earlier, the highest since President Recep Tayyip Erdogan took power. Economists had forecast an increase of 21.1%.

Berat Albayrak, Turkey’s treasury and finance minister and Erdogan’s son-in-law, was quick to blame the inflation rate on external factors and implied the crisis could abate by next month. “The current trend will be broken in October,” he said in an interview with a local news channel.

Conflicts between the central bank and government have pummelled the lira this year. It has shed nearly 40% of its value since the start of 2018 and is one of the worst-performing currencies of the year.

The central bank raised borrowing costs by 625 basis points to 24% in early September, despite backlash from Erdogan. The president backs unorthodox policies like cutting rates to curb inflation and has increasingly tried to wield influence over monetary policy since his reelection this year.

Analysts say they expect the central bank to increase rates despite Erdogan and slowing economic activity.

“We acknowledge these are strong arguments, but we think they are not enough to refute the case for a hike,” Inan Demir, a senior emerging markets economist at Nomura, said.

An ongoing rift between Ankara and Washington over the detainment of Andrew Brunson, an American pastor arrested in 2016 on alleged terrorism and espionage charges, has added to economic concerns in the country.

After NATO allies failed to make progress on negotiations for Brunson’s release, the Trump administration doubled existing tariff rates on Turkish metals and placed sanctions on government officials. Brunson’s lawyer said he has appealed for release from house arrest, according to Reuters. The next court hearing is October 12.

“The markets’ focus will now turn to the next hearing in American Pastor Brunson’s court case next week and a market-friendly resolution may reduce pressure on the TCMB to hike,” Demir said.

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