Central Bank of Turkey (CBT) to keep rates unchanged on Thursday

Although the TRY found some relief recently due to a pullback in oil and initial positivism around the Iranian deal, political uncertainty remains a key risk for the near-term currency outlook. 

"Central Bank of Turkey (CBT) is expected to remain on hold in Thursday's MPC meeting and to maintain its cautious monetary policy rhetoric", says Barclays. 

Meanwhile, macro data are rather a mixed bag, PMI reversed below 50 in June and industrial production slowed in May, highlighting fragility of the growth trajectory. The current account deficit also surprised on the upside, and core balance has deteriorated on a 12m rolling basis. 

On a more positive note, inflation has retreated to 7.2% in June from 8.1% in May, mainly because of falling food prices. Although inflation has some room to decelerate in Q3 before rebounding in Q4, upside risks on inflation outlook remain. The volatile nature of food prices warrant caution, and external vulnerabilities leave Turkey exposed to the repricing of EM risk and capital flow outlook, as well as the risk of further TRY depreciation.