EMEA: Near-term inflationary dynamics will likely set the tone for the TRY

In Turkey, the disinflationary impetus from Russian sanctions is expected to limit the uptick in December inflation (Monday, consensus: 8.50%). Nonetheless, the near-term inflation outlook remains challenging. Services inflation is stubbornly high, and a hike to the minimum wage in 2016 would likely add further inflationary pressures (the risk of inflation remaining sticky around 8% in 2016 is quite high). 

The CBT governor surprisingly downplayed the inflationary effect of the hike to the minimum wage during the presentation of monetary and foreign exchange rate report in early December. Against this backdrop, the market has already started to get concerned about a premature cut to the O/N lending rate (the upper end of the corridor). As such, near-term inflationary dynamics will likely set the tone for the TRY.

Separately, the December PMI will also be released on Monday, which is expected to show a slight moderation, to 50.6 from 50.9 in November.