Calming down, and back on TRY carry. After the stress signals in the spring of this year, things have calmed down again. Domestic demand and import spending are weakening at the margin, taking pressure off the external balance; the spike in TRY forward pricing has subsided and FX reserves are picking up once more. With the CBT keeping local short rates in the 40% per annum range and lira depreciation in the 20% per annum range, we are re-entering the TRY carry trade on a near-term basis.

But far from "out of the woods". However, as before we need to stress that Turkey is still far from out of the woods. In particular, there's no slowdown at all in the pace of local money and credit growth, now back above 40% y/y annualized; inflation is also stuck in the 35% y/y range, and commercial banks are still posting rapid growth in foreign liabilities, raising the potential for subsequent reversals. This is a profoundly weird and fraught equilibrium, with nothing but questions about where the country goes from here.