Fixed Income Forum

Data provided by Solve Advisors Inc

Turkey’s current inflation rate has driven CDS spreads to increase dramatically over the past month, as the country continues to experience shortages in agricultural commodities. The inflation for May 2022 rose by 73.5% year over year. Surging food and energy costs coupled with the country’s unconventional approach towards its monetary policy has driven inflation to its highest level in the last 23 years.

5-year sovereign CDS spreads were at 852 bps as of June 13th, 2022, as compared to 701 on May 12th, 2022 – a 22% increase month over month. The currency also took a hit of approximately 11% this month. Currently, the Turkish Lira is trading at 0.058 against the USD, as compared to 0.065 a month ago. Food prices in the country rose 91.6% year over year.

Analysts highly criticize the government’s insistence on lowering interest rates in order to boost exports. The government’s stance goes against the recommendations of the central bank to increase the interest rates to tackle inflationary pressures. Turkey’s central bank has cut rates to 14%, down 5% since September. Russia’s invasion of Ukraine, which led to an upsurge in energy and grain prices, has intensified the situation in the import-dependent nation.

Prices of construction materials have also doubled, leaving Turkey to face one of its worst property crises in the last few decades. According to a Turkish central bank report published in April 2022, housing prices have doubled year over year and rents have also shot up.

Market experts believe that the trajectory for Turkey’s inflation will only get worse.

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