Stability, not competitiveness, is essential in TL

Center Despite the Bank of Turkey’s (CBRT) decision to increase interest rates four times since June, the depreciation of the TL continues. Yesterday, in an environment of critical geopolitical events, the dollar reached its historical record of 27.76 lira.

During the four-month term of Mehmet Şimşek, who was appointed Minister of Treasury and Finance, and Gaye Erkan, who was appointed Central Bank (CBRT), TL lost 30 percent of its value. This loss would have been greater if it had not been supported by public foreign exchange sales. From June, when Şimşek took office, until mid-July, there was a 21 percent depreciation in the TL and the dollar rose from 20 lira to 26 lira. The pace of increase then slowed as public controls increased again. However, the difficult process of economic management, stuck between “competitiveness” and “stability” of the exchange rate, still continues. While the Central Bank increases its foreign reserves, the stability of the TL must also be maintained. Economists believe that the authorities should prioritize the stability of the TL without losing more reserves to support the process of fighting inflation and not due to competitiveness concerns. Because further weakness in TL is the biggest source of concern for the inflation outlook. In fact, the depreciation of TL makes imported inputs more expensive, causing prices to rise and inflation to rise.

COULD NOT PROTECT 21.5 POINTS

The CBRT increased the policy rate to 30 percent with a total interest rate increase of 21.5 points in 4 months from June. However, it remained well below expectations, along with rising inflation due to interest rate increases, tax increases, and TL depreciation. Experts predict that the gradual depreciation of the TL will continue until the elections, but the yield on foreign currencies may remain below the yield on TL deposits.

‘TL is cheap and competitive’

USAAccording to investment bank JPMorgan, further devaluation of the already cheap TL is not necessary and the authorities can keep the exchange rate stable without losing reserves. In her report on October 5, the bank’s analyst Anezka Christovova stated that the bond position in the Turkish lira is at the level of “performance in line with the market” and the position in the Turkish lira is at the “above market performance” level. The report states that analyzes indicate that TL is cheap and competitive, and includes the following assessments: “For this reason, we believe that the authorities can prioritize the stability of the lira to help fight inflation rather than concerns about the competitiveness”.

New record for the dollar

While the decline in US bonds continues, the dollar is in a positive, although limited, position in global markets. On the other hand, a new record has been tested in the environment of the geopolitical evolution of the dollar. After the United States shot down a Turkish unmanned aerial vehicle (UAV), geopolitical tension increased in the region and exchange rates also fluctuated. The dollar, which was trading at 27.7672 liras yesterday morning, ended the day at 27.6200 liras. The euro reached its highest level of 29.2998.

TL loss in 4 months is 30 percent.

TL has lost 32.5 percent of its value against the dollar since the beginning of the year. Since June, when control over the exchange rate was loosened, the TL’s depreciation has reached 30 percent. In the last month, an increase of more than 3 percent was recorded in the dollar/TL exchange rate. Over the past month, the dollar exchange rate has increased by more than 3 percent. Economists predict that the gradual and limited depreciation of the TL may continue, but the foreign currency yield may remain below the yield on TL deposits until the local elections.