In turn, the renewed currency slump in Argentina was not without impact on Turkey, the other key EM that has been heavily sanctioned by financial markets this year. The TRY depreciated by -8% vs. the USD in the last week of August, taking the full-month decline to -25% and the YTD fall to -43%. As a result, inflation continued to surge. Consumer prices increased by a near 15-year high of 17.9% y/y in August (up from 15.9% in July) and producer prices rose by 32.1% y/y (25% in July). We expect consumer price inflation to rise further in the next months. Moreover, as the Central Bank of Turkey refrained from interest rate hikes to counter the TRY sell-off in August and instead took measures to provide more foreign exchange (FX) liquidity to the markets, its official FX reserves have fallen to USD73bn on 24 August 2018, the lowest level since June 2010, and down -USD6bn since end-July 2018 or -USD19bn y/y. As a result, import cover has fallen to just 3.4 months (from 4.1 at end-2017 and a peak of 5.9 in August 2016). Expect the currency crisis to persist and deepen as long as the authorities continue to refrain from decisive economic policy measures
