EUR/USD parity effect turns to positive: good news for exports
SLOWDOWN in foreign demand, decline in commodity prices, currency pressure, conversion of export revenues to TL and negative parity effect (EUR/USD parity) has been the factors that affecting exports for some time already. However, negative parity effect (EUR/USD parity) has begun to reverse for exports. The EUR/USD parity, which has been on decline uninterruptedly for 20 months since September 2021, caused a decrease in the dollar equivalent of Turkey’s export revenues in Euro. (See graph: Change in EUR/USD parity)
In the 20-month period, when the decline in the parity reduced the dollar equivalent of exports, the total effect was USD 18.6bn. The negative parity effect has increased to USD 2bn per month by the end of 2022. This means that exports revenues would have been USD 2bn higher if the parity had not fallen and remained at the same level as the same month of the previous year. The cumulative effect of the decline in the parity on exports during the last 20 months was USD 18.6bn. This is just an effect from the Euro. The effect of the decline in GBP/USD is not included in this. (See graph: Parity effect on exports)
The EUR/USD parity exceeded the previous year in the annual rate of change after a long hiatus last April. This outlook continues in May as well. This change will have a slightly positive effect on export data in April and May. We will probably see a positive impact of USD 100-200m in April. We can’t be sure about what will happen in the coming months. However, the fact that the Fed has come to an end in interest rate hikes may cause the dollar to remain looser against the main currencies in the coming period.
HOUSING PRICE INCREASE SLOWS DOWN
The housing price index increased by 132.8% compared to the previous year in March. Although prices are increasing at an extremely fast pace, the increase in March is the lowest rate of increase in the last 11 months. (See graph: Annual increase in house prices)
One of the important reasons behind the decrease in the rate of increase in the price index is that the increase in construction costs has started to calm down. The increase in the construction cost index was 60.7% in March. Another reason is that prices are too high and the market won’t be able to handle the higher price level. Another factor, albeit smaller, is the decline in housing sales.
KKM BREAKS NEW RECORD
The volume of FX protected TRY deposit accounts (KKM) increased by TRY 143.6bn to nearly TRY 2.35tr, according to the Banking Regulation and Supervision Agency (BDDK) data. This means a size of approxi
mately USD 120bn. (See graph: FX protected TRY deposit accounts)
The Central Bank’s weekly money and banking data showed a decrease in foreign currency deposits of domestic residents while KKM was increasing. Foreign currency deposits of domestic residents decreased by USD 2.2bn in the week starting with May 12, when exchange rates rose sharply before the elections, according to the Central Bank data,
NET RESERVES DECREASED TO USD 2.3BN
Central Bank data revealed that IMF-defined net international reserves decreased by USD 4.45bn in one week to USD 2.3bn before the May 14 elections. Net international reserves fell to USD 2.33bn, the lowest level in history. The Central Bank has been keeping net reserve data since the beginning of February 2002. The net reserves, which were negative for the first five weeks of 2002, were always positive afterwards, and have never regressed to USD 2.3bn since then.
The loss in net international reserves since the beginning of the year was USD 25.2bn. Net international reserves were at the level of USD 27.5bn in the week starting with December 30, 2022.
The Central Bank’s total reserves decreased by USD 9bn in the starting with May 12 compared to the previous week to USD 105.1bn. Gross foreign exchange reserves, on the other hand, decreased by USD 7.6bn to USD 60.8bn.