India services PMI falls to 60.8 in April from 61.2 in March
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Despite the decline in the headline reading, the figure still marked one of the fastest growth rates in just under 14 years.
Growth in India’s dominant services industry softened in April but remained sturdy on robust domestic and foreign demand, lifting business confidence to a three-month high, a survey showed on Monday.
The HSBC final India Services Purchasing Managers’ Index, compiled by S&P Global, fell to 60.8 in April from 61.2 in March, confounding a preliminary estimate for a rise to 61.7.
Despite the decline in the headline reading, the figure still marked one of the fastest growth rates in just under 14 years.
Activity in the services sector has been above the 50-mark separating growth from contraction since August 2021.
Favourable market conditions and buoyant demand pushed the new business sub-index to a three-month high, the third-highest in around 14 years.
”India’s service activity rose at a slightly softer pace in April, backed by a further rise in new orders, with notable strength in domestic demand,” noted Pranjul Bhandari, chief India economist at HSBC.
”Although new export orders remained robust, they showed a slight moderation from March.”
Strong global demand for Indian services meant the index only dipped slightly from March when it chalked up its highest reading since data collection started in September 2014.
However, growing business optimism failed to create jobs at a significant pace. Hiring was muted although the current sequence of job growth extended to almost two years.
Operating costs increased at a high pace stemming from elevated raw material and labour costs. However, the rate at which firms passed on the burden to clients softened from a near seven-year high in March.
Quarterly inflation in India was forecast to average 5.0% or below this fiscal year, according to an April Reuters poll, giving room for the Reserve Bank of India (RBI) to cut rates.
Economists predicted the RBI will lower its key repo rate by 50 basis points before year-end.
A manufacturing index released on Thursday dipped modestly to 58.8 in April, which combined with the small retreat in services activity, brought down the overall Composite PMI to 61.5 from March’s eight-month high of 61.8.
”In terms of overall activity, aggregate output across both the manufacturing and service sectors rose significantly in April, albeit at a slightly slower pace, indicating sustained health in these sectors,” added Bhandari.
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China’s services activity eases in April but still solid, Caixin PMI shows
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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The Caixin/S&P Global services purchasing managers’ index (PMI) eased to 52.5 from a 52.7 in March, remaining in expansionary territory for the 16th straight month. The 50-mark separates expansion from contraction.
China’s services activity expansion slowed a touch amid rising costs, but growth in new orders accelerated and business sentiment rose solidly in a boost to hopes of a sustained economic recovery, a private sector survey showed on Monday.
The Caixin/S&P Global services purchasing managers’ index (PMI) eased to 52.5 from a 52.7 in March, remaining in expansionary territory for the 16th straight month. The 50-mark separates expansion from contraction.
The world’s second-largest economy grew faster than expected in the first quarter but it is still facing a host of challenges including a prolonged property slump and lacklustre domestic demand.
“The strong start to the year is consistent with the Caixin manufacturing and services PMIs, which have remained in expansionary territory for several straight months,” said Wang Zhe, Senior Economist at Caixin Insight Group.
Overall new business hit the highest since May last year, while better overseas demand and growth in tourism activity helped propel growth in new export orders to their fastest pace in ten months.
That in turn helped lift business confidence among Chinese service providers in the 12 months ahead to the highest this year.
Companies did continue to face some cost pressure, with input price rises for material, labour and energy though the uptick remained below the long-run survey average. That led firms to increase prices charged to their customers, while they remained reluctant to fill vacancies created by departures.
“Consistent efforts should be made to ensure earlier policies are implemented effectively and promptly, maintaining the current economic recovery momentum and eventually improving overall market expectations,” Wang said.
Economists say the Caixin survey is skewed more towards smaller, export-led firms than the much broader official PMI, which showed a sharp slowdown in services sector activity for last month.
The Caixin/S&P’s composite PMI, which tracks both the services and manufacturing sectors, rose to 52.8 last month from 52.7 in March, marking the fastest pace since May in 2023.
China’s economy has struggled to mount a solid post-COVID revival, mainly due to the ripple effects on confidence and demand stemming from a prolonged property sector crisis.
While pockets of strength in the first quarter GDP report raised hopes of a steady recovery through the rest of the year, the general consensus among economists is that a robust revival is some way off.
Investors and analysts say China’s structural reform efforts must go hand-in-hand with greater stimulus measures to foster a stronger and sustainable economic recovery.
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View | Why India is truly poised to become a global economic powerhouse
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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At the heart of India’s robust economic stability lie several growth drivers, each running on full steam to power the nation’s upward trajectory. These growth pillars, in my opinion, include infrastructure, digital ecosystem, rising middle-income and progressive reforms, writes IPM India’s Managing Director Navaneel Kar in his exclusive column.
A decade back, India was the 10th largest economy in the world. However, today, with a $4.11 trillion GDP, we are aiming to be the 3rd largest by 2030. As someone who has actively witnessed the country’s economy flourish, especially over the last decade, I am inspired by the dynamism of the Indian economy.
Today, as we stand at the precipice of a new era, it is evident that India’s resilient economy is poised to propel the nation even further towards prosperity. At the heart of India’s robust economic stability lie several growth drivers, each running on full steam to power the nation’s upward trajectory. So, what are these growth pillars? In my opinion, the critical areas are infrastructure, digital ecosystem, rising middle-income & progressive reforms. Let’s delve a bit on how these pillars are enabling India leapfrog from ‘Good’ to ‘Great’.
Infrastructure Drive
India has taken significant strides in modernising infrastructure with major push in building roads, highways, railways, waterways, and air connectivity. Laying a solid foundation for sustained growth, the government launched the ambitious GatiShakti followed by National Logistics Policy enhancing the infrastructure and building efficiencies for logistics.
The pace of road building in India improved to 27 km daily on average, from 24 km per day over the last two years. Recently, the minister of civil aviation stated that the plan is to increase the number of airports from 148 to 200 in next four years.
Global economies must sit up and acknowledge the potential of this growing economy — the strides are apparent as India ranked 38 out of 139 countries, improving its ranking by six places in World Bank’s Logistics Performance.
Digital highway to prosperity
India has shifted gears by preparing for the new frontier of digital ecosystem. The country has built a world-class digital infrastructure by embracing technology thereby witnessing rapid transformation. The central nervous system was the ‘Digital India Initiative’ which played a pivotal role in breaking barriers and bringing all citizens into the digital mainstream.
One of the key achievements has been UPI which has revolutionised the way India transacts. Another significant development is the Aadhar-based identification and verification system bringing authenticity and ease for individuals to access government services. It has also enabled the government to touch the lives of millions of individuals from the lower economic group through direct transfers to beneficiaries.
This digital infrastructure is what helped the country provide large scale vaccination drive even during the pandemic through its CoWin platform. However, the highlight is that this platform was deployed in other countries such as Indonesia, Philippines, Sri Lanka etc. While several measures have been undertaken to overcome certain challenges such as digital literacy, improvements for a robust cyber security ecosystem and infrastructure development will unleash the full potential of the nation.
Rising consumption powerhouse
Interestingly, while the world is struggling with inflation led woes, India has found a market within, rising middle income group, and increasing purchasing power are fueling economic growth. According to the findings of the People Research on India’s Consumer Economy (PRICE), the size of India’s middle class will nearly double to 61% to its total population by 2047 from 31% in 2020-21.
The burgeoning middle class in India represents a vast consumer base with evolving aspirations and demands. This not only stimulates domestic investment but also attracts foreign investments, driving economic expansion and fostering innovation. India is poised to become a major player on the global stage in the coming years, and the rising middle income and increasing purchasing power parity are sure to play a key role in this transformation.
Reforms shaping economic resurgence
The government has certainly made the country a lucrative investment destination thanks to the progressive reforms undertaken. The particular one that stands out is the Ease of Doing Business, the sheer meteoric rise of 79 ranks from 142 to ranking 63 in 2020 in World Bank’s Doing Business Report speaks volumes of the mammoth undertaking.
The government in 2023 announced the scrapping of 39,000 compliances and 1,500 archaic laws, and in 2017, introduced GST as to ensure standard indirect tax rates and structures which further helped make India a viable growth market for global companies.
These initiatives showcase a commitment towards fostering business-friendly environment and making India a lucrative investment destination. Additionally, initiatives like the Make-in-India campaign, aimed at promoting manufacturing and entrepreneurship, and the Startup India program, which offers incentives and support to budding entrepreneurs, underscore India’s shift towards harbouring innovation and entrepreneurship.
India’s economy has shown remarkable strength in the face of global challenges. By focusing on infrastructure, digital infrastructure, and increased purchasing power, we can unlock the full potential of the economy and create a brighter future for all Indians and a beacon of global development.
—The author, Navaneel Kar, is Managing Director, Philip Morris International Inc’s India affiliate, IPM India Wholesale Trading Pvt. Ltd (IPM India). The views expressed are personal.
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Bottomline | The risk of rising debt for USD and beyond
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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The dollar isn’t going out of fashion anytime soon, but that doesn’t mean rising US debt won’t hurt.
When Elon Musk says anything, people take notice. And when he says that the dollar will be worth nothing if the US doesn’t do anything about its rising debt, the uninitiated are clearly spooked.
To be fair, maybe his expression is possibly a way of calling attention to a matter that requires urgent attention. And it does.
US DEBT WORRIES
But what Musk is saying now, is something others have been saying for a while.
An institution no less than the International Monetary Fund (IMF) at its April briefing said: “Moderate fiscal tightening is expected to resume this year, but significant uncertainty remains. In 2024, a record number of countries, with more than half of the world’s population, are holding elections. Evidence shows that in election years, realised deficits are 0.4 percentage points of GDP higher than budgeted. Looking ahead, global public debt is projected to approach 100% of GDP by the end of the decade. This rise in global public debt is primarily driven by China and the United States, where public debt is now higher and is expected to grow faster than pre-pandemic projections. Loose fiscal policy in the United States exerts upward pressure on global interest rates and the dollar. It pushes up funding costs in the rest of the world, thereby exacerbating existing fragilities and risks.
While modest fiscal tightening is projected over the medium term, it will be insufficient to stabilise public debt in many countries.”
Source: Federal Reserve of IllinoisSource: IMF
The IMF goes on to highlight the deterioration in fiscal position in the US and the need to rein in deficits.
It says: “In 2022, the US cyclically adjusted primary deficit was at 1.9% of GDP. In 2023, it multiplied (by) almost three, to reach 5.6% of GDP. And going forward, the primary deficit in the United States will stay in the range of three-point-something and only comes below three toward the end of our projection period. That leads to a situation where debt is increasing at about two percentage points of GDP per year.
We have emphasised many times that this fiscal policy puts pressure on policy rates. It puts pressure on long-term rates. It affects costs of funding everywhere in the world. And if the stance of policy in the United States is also uncertain, there is also an element of risk, which is reflected in the pricing.
Our view about the United States is that the authorities have a number of options that they can use to put the situation under control. And the way it will be done will be the outcome of the political process in the United States.”
That this is a big issue for the stability of the dollar, the US and global economy and markets is well accepted. Even the Oracle of Omaha, Warren Buffett, at the annual Berkshire meeting made it a point to draw attention to this while calling Fed Chair, Jerome Powell a “very wise man”.
Buffett said: “(Powell) doesn’t control fiscal policy, and every now and then he sends out a disguised plea… because that’s (US deficit) where the trouble will be, if we have it,”
In fact, some argue that the Fed’s trimming of its quantitative tightening was a consequence of the US not reining in its deficits, that need to be funded.
WHAT RISING DEBT CAN SPELL
The rise in US debt has been truly unprecedented with net interest expenses expected to account for 17.6% of federal receipts in 2024.
What’s more, the US Congressional Budget Office (CBO) has projected it to remain at elevated levels.
In its outlook, the CBO says: “Measured in relation to gross domestic product (GDP), the deficit amounts to 5.6% in 2024, grows to 6.1% in 2025, and then shrinks to 5.2% in 2027 and 2028. After 2028, deficits climb as a percentage of GDP, returning to 6.1% in 2034. Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007–2009 financial crisis, and the coronavirus pandemic”.
What this spells, is that the US government will need to print more dollars or borrow more from the future to bridge its deficit. That will exert pressure on cost of goods and services, pushing up inflation, and raise borrowing costs. This in-turn will put even more interest servicing pressure on the fisc.
All this will hurt the dollar, which could lose some value. This could spur some shift to safe-haven assets (more on this later), while rising yields on bonds could increase appetite for debt versus other asset classes.
All this can eventually hurt growth and employment, if corrective action is not taken soon.
So, not just the US economy and finances, but even the global markets could be significantly impacted.
CENTRAL BANKS’ RUSH FOR GOLD
In light of the growing dollar risks, the spate of gold buying by prominent central banks acquires added significance.
Already, some are proposing alternative exchange currencies to the greenback to settle trades between themselves.
While this is also an outcome of geopolitical developments, they hold significance for the dominance of the dollar and its value.
World Gold Council in its report for the first quarter of the year says: “With central banks accelerating their gold purchases to above 1,000t per year in 2022 and 2023, the market is finally beginning to appreciate the importance of their contribution to gold demand. Accounting for almost a quarter of annual gold demand in both those years, many have attributed central banks’ ongoing voracious appetite for gold as a key driver of its recent performance in the face of seemingly challenging conditions: namely, higher yields and US dollar strength.
And despite the high bar set in the last two years, the voracious buying has continued into 2024 in the face of the renewed gold price rally. Global official gold reserves rose by a net 290t, the highest Q1 total in our data series back to 2000; 1% higher than the previous Q1 record set in 2023 (286t) and 69% more than the five-year quarterly average (171t).
Not only is the long-standing trend in central bank gold buying firmly intact, it also continues to be dominated by banks from emerging markets. Ten central banks reported increased gold reserves (of a tonne or more) during Q1, all of whom have been active over recent quarters”.
Clearly, the central banks are onto something and building their gold buffers. And this includes our own Reserve Bank of India (RBI).
THE RISK OF A CRISIS
While the dollar may not be going to “nothing” anytime soon, US debt is clearly a trouble spot.
Billionaire investor Leon Cooperman recently told CNBC: “I think we’re heading into a financial crisis in this country (US)”.
And even while even that may be avoided, the risks of some impact on financial markets with the unprecedented growth in US debt levels is quite real and how US policymakers deal with the growing burden following the elections will be a key monitorable.
Valuations in the markets are the other key concern and risk factor for equities.
Warren Buffett speaking at the annual Berkshire Hathaway meeting clearly voted for treasuries and cash: “I don’t mind at all, given current conditions, building our cash position. When I look at the equity markets and the composition of what’s going on in the world, we find cash quite attractive.”
Given the heightened uncertainty, several moving parts (on direction of interest rates, economic policies with several nations going to polls, geopolitical developments and technological disruption with AI and such and the fairly well priced value of equities, this is a time for caution and bottom-up investing. So, stay alert, nimble and diversified.
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Indian govt officials say nod to onion export based on harvest season and crop, not dates of election
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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The average price of onion exports is between $550 and $600 per tonne, as government-to-government exports remained unaffected due to the lifting of the ban, as per government officials.
Union Government officials have indicated that the recent decision to re-allow the export of onions is based on the harvest season, quality of crop and domestic market prices and is not influenced by the dates of elections. The onion-growing areas of Maharashtra are slated to go to polls in the next three phases of the ongoing general elections—phase 3, phase 4 and phase 5—where there has been a continuing demand from farmers to remove the export ban.
Officials assured that the decisions by the government’s Interministerial Committee (IMC) on price control are immune to announcements by exporters’ bodies and shouldn’t be looked at in isolation.
On Saturday, India has allowed the export of onions from May 4, subject to a minimum export price (MEP) of $550 per tonne along with a 40% duty, which, according to government officials, have been fixed on the basis of the benchmarked free on board (FOB) price and the market situation.
The MEP is applicable to both red and white onions, though white onions usually get exported at higher prices, mostly in processed form, which is higher than the price of raw onions. As per government officials, the average price at which onions are being exported is $550 to $600 per tonne, even as government-to-government exports remained unaffected due to the lifting of the ban.
The estimated rabi season production in 2024, a good prospect of the kharif crop, and a stable domestic market situation at the mandi and retail level have been taken into account by officials while taking the decision. Officials pointed out that the onion prices in the Lasalgaon mandi have remained stable at ₹15/kg for the past few months and have even slid further after the ban on exports was lifted.
A high-level government committee had visited Maharashtra‘s onion growing areas of Nashik, Ahmednagar and Solapur for stakeholder consultation. They found good arrivals of onions in the mandi, which was also considered by the IMC on price control, which made the decision. Last year, the government imposed a ban on the export of onions to augment domestic availability in view of an estimated 20% fall in kharif and late kharif production.
Officials explained that for the first three months of harvest, dry conditions ensure little loss in the storage of onions. However, the losses can rise to 30–35% if storage takes place beyond three months. As onions can’t be stored beyond the shelf life of four to six months, the government reasoned that longer storage of onions would have increased the storage cost further.
In view of an average of 17 LMT of monthly consumption of onions in India, 5 LMT of buffer stock will be created this year too, as the officials said that a regular review of the supply and pricing situation would be undertaken.
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Indian govt lifts onion export ban days before Nashik goes to polls
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Indian government allows export of onions subject to a minimum export price of $550 per MT with the notification coming into immediate effect.
The Indian government has lifted the export ban on onions just days before the Nashik region, known as India’s highest onion-producing area, goes to polls.
The notification issued by the Union Government reads, “The export policy of Onions is amended from ‘prohibited’ to ‘free’ subject to minimum export prices of $550 per Metric Ton (MT) with immediate effect and until further orders.”
On Friday, the government issued a notification lifting the export ban, albeit with a 40% export duty in place.
This development has been welcomed by Nashik traders, who see it as a significant relief. Vikas Singh, an onion trader, told CNBC-TV18, “This announcement has led to a price drop in onions exported by Pakistan and other countries, which had taken over the market during India’s export restrictions. For the time being, this is a huge relief for us.”
In August 2023, the Union government imposed a 40% export duty on onions until December 31, 2023, aiming to control domestic market prices. This move faced strong opposition from traders and farmers in Nashik, leading to protests and closures of key Agricultural Produce Market Committee (APMC) markets Lasalgaon and Pimpalgaon. Farmers and traders staged multiple protests opposing the decision, but it didn’t lead to any policy change.
Later, in December 2023, a complete onion export ban was enforced until March 2024. This decision caused significant distress among onion traders. CNBC-TV18 highligted substantial financial losses faced by farmers and traders in the Nashik region because of the export ban. Agitated farmers and traders claimed that the export ban could result in huge electoral loss for the ruling BJP in the 2024 Lok Sabha elections in Nashik and other onion-producing areas.
Last year’s export ban resulted in losses estimated at around ₹10,000 crore for traders, farmers, and other stakeholders in the onion industry. While this latest announcement is expected to provide relief, concerns remain regarding the 40% export duty, which continues to worry traders and farmers.
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India imposes 40% export duty on onion effective May 4
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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India implements 40% export duty on onions, extends duty exemptions for imports of desi chana and yellow peas until March 2025.
The Indian government on Friday (May 3) imposed a 40% duty on the export of onions and exempted duty on the import of desi chana till March 31, 2025.
Also, the government has extended the duty exemption on imports of yellow peas covered by the bill of entry issued on or before October 31, 2024. The changes would be effective from May 4, 2024, the Union finance ministry notification said.
Currently, the export of onion is banned. However, the government allows shipments to India’s friendly nations. It has permitted a specified quantity of onion exports to UAE and Bangladesh.
In August last year, India imposed a 40% export duty on onions up to December 31, 2023.
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The central bank’s draft rules include a classification of the projects as per their phase and higher provisioning of up to 5% during the construction phase, even if the asset is standard.
The Reserve Bank of India (RBI) on Friday (May 3) proposed tighter rules to govern lending to projects under implementation.
The central bank’s draft rules include a classification of the projects as per their phase and higher provisioning of up to 5% during the construction phase, even if the asset is standard.
It can be noted that in the last credit cycle, project loans were seen to have led to a build-up of stress on bank books. The standard asset provisioning otherwise stands at 0.40%.
Under the proposed norms, first announced in September 2023 and the details revealed on Friday, a bank has to set aside 5 per cent of the exposure during the construction phase, which goes down as the project becomes operational.
Once the project reaches the ‘Operational phase’, the provisions can be reduced to 2.5% of the funded outstanding and then further down to 1% if certain conditions are met.
These include the project having a positive net operating cash flow that is sufficient to cover current repayment obligation to all lenders, and the total long-term debt of the project with the lenders has declined by at least 20% from the outstanding at the time of achieving Date of Commencement of Commercial Operations, it said.
The proposed guidelines also spell out details on stress resolution, specify the criteria for upgrading accounts, and invoke recognition. It expects lenders to maintain project-specific data in an electronic and easily accessible format.
Lenders will update any change in the parameters of a project finance loan at the earliest but not later than 15 days from such change. The necessary system in this regard will be put in place within 3 months of the release of these directions, it said. The public has been given time till June 15 to respond to the proposals.
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India, Nigeria likely to finalise local currency settlement system agreement soon
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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India’s Ministry of Commerce and Industry has said that both sides held a comprehensive dialogue to review the recent developments in bilateral trade and investment ties, while acknowledging the vast untapped potential for further expansion.
India and Nigeria are likely to finalise a local currency settlement system agreement soon, with an aim to further strengthen bilateral economic ties. The prospect was discussed at the 2nd Session of the India-Nigeria Joint Trade Committee (JTC) held in the Nigerian capital city of Abuja on 29th and 30th April 2024.
India’s Ministry of Commerce and Industry has said that both sides held a comprehensive dialogue to review the recent developments in bilateral trade and investment ties, while acknowledging the vast untapped potential for further expansion.
Several areas of focus have been identified for enhancing bilateral trade and investments, which include resolution of market access issues on both sides, and cooperation in sectors like crude oil, natural gas, power, Pharmaceuticals, Unified Payments Interface (UPI), renewable energy, agriculture, food processing, education, transport, railway, aviation and MSMEs.
India’s 7-member delegation was led by Amardeep Singh Bhatia, Additional Secretary with the Department of Commerce; who co-chaired the JTC along with Nigeria’s Permanent Secretary with its Federal Ministry of Industry, Trade and Investment.
India’s official delegation also comprised of officials from Reserve Bank of India (RBI), EXIM Bank of India and National Payments Corporation of India (NPCI), as well a delegation from the CII.
In a concerted effort to bolster bilateral trade, both sides committed to expeditiously address all issues impeding bilateral trade and facilitate trade promotion between the two nations.
Nigeria is the 2nd largest trading partner of India in Africa region, with a bilateral trade worth $11.8 billion in 2022-23. In the year 2023-24, the bilateral trade stood at $7.89 billion, showing a declining trend.
With a total investment of $27 Billion, approximately 135 Indian companies are actively engaged in Nigeria’s market, with investments in sectors like infrastructure, manufacturing, consumer goods and services.
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Turkish inflation nears 70% with peak likely around corner
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Consumer prices grew 69.8% from a year earlier, the fastest since late 2022 and up from 68.5% in March. The median estimate in a Bloomberg survey of economists was just over 70%.
Turkey’s inflation rate, already one of the world’s highest, accelerated for the sixth straight month, as government policies such as wage hikes counter aggressive interest-rate increases.
Consumer prices grew 69.8% from a year earlier, the fastest since late 2022 and up from 68.5% in March. The median estimate in a Bloomberg survey of economists was just over 70%.
Monthly price growth, the central bank’s preferred gauge, was steady at 3.18%. Turkish monetary authorities have said that annual inflation probably won’t peak until this month, before slowing to 36% by the end of the year.
The central bank is likely months away from starting to cut borrowing costs. It’s lifted its key rate to 50% from 8.5% in June, marking a U-turn after several years of heeding President Recep Tayyip Erdogan’s calls for ultra-loose monetary policy.
“Inflation is below expectations and the lira is performing well,” said Onur Ilgen, head of Treasury at MUFG Bank Turkey AS. “I don’t think there is a need for an additional interest-rate hike with the continuation of the lira’s positive course.”
Governor Fatih Karahan pointed to lingering inflationary concerns, including in the services sector, when the central bank held rates last week.
The latest figures provided further evidence that price pressures remained elevated in April.
Services inflation quickened to an annual 97% from 96.5% in March, according to official data. Price gains in core consumer goods — an index that strips out the impact of volatile items such as food and energy — accelerated to 75.8% from 75.2%.
Investors are scrutinizing Turkey’s progress in slowing inflation so they can time a return to a country whose local bonds were once a magnet for foreign buyers. Inflows have been slow in recent months despite the high returns on offer.
Yet Wall Street banks such as Citigroup Inc. and JPMorgan Chase & Co. now recommend buying the lira. HSBC Holdings Plc has called Turkey “one of our favorite markets.”
A steadier currency could offer a possible respite from inflation by helping hold back the cost of imported goods. Having depreciated nearly 4% against the dollar in March, the lira was mostly flat last month. It’s down almost 9% in the year to date and trading around 32.4 versus the US currency.
The lira has lost almost 80% of its value since the start of 2021, a performance blamed by many economists and investors on the central bank’s dovish stance.
“We think encouraging policy signals will contain downward pressure on the lira,” Maya Senussi of Oxford Economics said in a report before the data release. “The risk of faster nominal depreciation is still substantial given the inflation outlook and upside risks from global rates, oil prices, and geopolitics.”
Worsening sentiment among households adds another complication. Turks see inflation at 96% at the end of the year, according to a survey by Koc University researchers and pollster Konda. That’s more than double the projection in a recent central bank poll of financial-market participants.
Monetary policy will remain tight until there’s “a significant and sustained decline in the underlying trend of monthly inflation,” the central bank has said. It’s signaled further rate rises are possible if it identifies “a significant and persistent deterioration” in the outlook for inflation.
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