Real TRY value to run aground in November

Dunya Executive - - COMMENTARY -

Real effective foreign exchange rate calculations fell to 87.55 in January. That indicated the lowest real value of Turkish lira since 2003. The second lowest value was observed last month. The real effective foreign exchange rate fell to 87.96 in October. Because of their significance for Turkey’s foreign trade, real effective foreign rates are largely based on the US dollar and euro. The USD/TRY was an average of 3.66 in the previous month and the euro/TRY average was 4.31. But these figures do indicate the averages. The increase evident in foreign exchange rates towards the end of October is also continuing this month. The Central Bank of Turkey even needed to take action last week. After which, the foreign exchange rate improved a little but we still face levels far above the October average.

The dollar was 3.81 in the first week of November and the euro was 4.44. The currency basket was 3.99 on average in October. The average currency basket for the first week of November on the other hand realized at 4.12, an increase of more than 3% compared with the October average. We can’t predict the exact foreign exchange rate increases for the US or EU for November, but they are unlikely to be too high. That is to say, other countries don’t expect inflation that could curb a foreign exchange rate increase of around 3% for the moment. Our inflation is expected to realize at around 0.9% for November.

If the foreign exchange rate increases by more than 3% in a month where inflation is 0.9%, that means a significant depreciation for the local currency. Therefore, the real effective foreign rate that fell to its second lowest level (87.96) will fall a little further. It won’t be a surprise if real effective foreign exchange rates fall even further than January and break a new record low.

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