Developing country currencies are shining, TL is in the losers league

In the world showing signs of recovery in the economy increased interest in emerging market stocks and bonds. While there are unprecedented inflows of funds into the markets of developing countries, the appreciation of currencies against the dollar is also increasing. Turkey, on the other hand, cannot benefit from this flow of funds due to the complexity of the policies implemented in the ‘New Economy Model’ and the low real interest yield of the LT. While developing country currencies have risen against the dollar since the beginning of the year, TL has once again been in the losers’ club.

Looking from the beginning of the year, the Colombian peso 7.38 percent, the Chilean peso 6.76 percent, the Russian ruble 6.72 percent, the Thai baht 5.28 percent, and the Hungarian forint they were in the top five with gains of 4.4 percent. On the other hand, TL was among the five currencies that lost against the dollar. In the behavior of currencies against the dollar in 2023, the Argentine peso ranked first with a depreciation of 4.42 percent. Since the beginning of the year, the South African rand has lost 0.91 percent, the Peruvian sol 0.79 percent, the Turkish lira 0.53 percent and the Hong Kong dollar 0.35 percent.

BEHIND THE COMPETITION

Dollar-denominated assets have been weakening since the beginning of the year in parallel with the decline in expectations of interest rate hikes by the US Federal Reserve. Although this weakening is reflected positively in the currencies of the countries in development, optimism is not reflected in the Turkish lira. While many developing countries are raising interest rates to accommodate new financial investment trends, Turkey is lagging behind in the yield competition in developing countries. The monetary policy implemented in Turkey removed the negative real returns (-55.2%) from the standard, making it very difficult to maintain savings in TL.

Policies are difficult to understand and dissuasive for foreigners

Etem Öztekin, Director of Treasury at Ata Investment, explained the reasons for the limited gains in TL, while the currencies of many emerging countries gained value with the effect of portfolio flows, noting that the foreign-dependent structure of the economy Turkey, in particular, continued to put pressure on the LT through the current account balance channel. Öztekin said that the weight of macroprudential measures in applied economic policies is gradually increasing and that the macroeconomic framework is difficult to understand and partly dissuasive for foreign investors, and that this can be observed with direct and portfolio investment developments.