The most talked about topic in the Turkish economy in recent weeks was the appreciation of the Turkish lira. In the three months since Berat Albayrak’s resignation from the Ministry of Treasury and Finance, the Turkish Lira (TL) appreciated against both the US Dollar and the Euro on November 8, 2020, and performed positively among developing countries.
Is this recovery in the Turkish lira permanent or temporary?
According to economists, the Turkish lira may begin to depreciate again in the coming months due to rising inflation. Exporters want to get the turnover as soon as possible in order to maintain the competitiveness of the Central Bank of Turkey.
The influence of Naci Agbal on TL
After Berat Albayrak, changes in both economic management and Central Bank policy led to the appreciation of the Turkish lira against the dollar and the euro. In the last three months, the Turkish lira has appreciated by about 18 percent against the US dollar and the exchange rate has fallen from 8.50 to 7.05. The Turkish lira has shown a similar performance against the euro in the last three months, pulling from the level of 10.12 to 8.50. Thus, for the first time in a long time, the Turkish lira has succeeded against the dollar and the euro among developing countries.
The most important reason for the rise in the value of the Turkish lira is the policies and statements of the new Central Bank leadership, led by Naci Agbal, which gives confidence to the markets. The confidence award given by the Central Bank of Turkey, for the first time since March 2020, fell below 300 points, experts said that if the high interest rate policy continues, the decline in exchange rates will continue for some time.
“Brunson and the pandemic cause history to become obsolete”
Speaking to DW Turk, Prof. President of the Department of Economics, Istanbul University of Culture. Dr. According to Sinan Alci, rising inflation will be decisive for the Turkish lira.
Prof. Alçın pointed out that the Turkish lira has suffered a historic loss of value as a result of events such as the private sector debt problem, which has exceeded $ 300 billion since 2016, and the Brunson crisis after the transition to the presidential system in 2018. Stating that the interest rate cut initiated by the Central Bank since July 2019 is tense with the pandemic crisis that began in the first quarter of 2020, Alçın said, “Developments have significantly disrupted price stability and created a risk of inflation. Murat, after July 2020.” The Central Bank, led by Uysal, has promised a tight cut, but when interest rates did not rise, exchange rates picked up again. “
“At the end of the year, the exchange rate may rise again to 8.50”
He noted that in October 2020, the Central Bank experienced a new exchange rate shock with the melting of foreign exchange reserves. “The appointment of Naci Agbal to replace Murat Uysal in early November and the subsequent rise in interest rates following the resignation of Berat Albayrak in early November are part of the rise in foreign exchange,” Alcin said. Stating that both the steps taken by the Central Bank in the last three months and the messages it has given in the fight against inflation have begun to restore confidence in the Turkish lira, Alçın said:
“In the next period, the value of the TL will be determined by inflation and the steps taken by the Central Bank. At the end of April, we can see a result of inflation exceeding 16 percent. I forecast 12 percent inflation by the end of the year. Discounts may lead to lower TL depreciation. “My expectations for the dollar at the end of the year are 8.50, and I continue to expect that.”
Will the decline in the exchange rate be reflected in prices?
The appreciation of the TL against the dollar and the euro has not yet been reflected in the market or energy prices. According to many economists, it will not be realistic to expect an improvement in prices in the short term due to inflation reaching 15 percent. On the other hand, there are growing concerns that the appreciation of the TL will negatively affect export performance, which is vital for growth. Looking at January exports, it is noteworthy that the 2.5 percent increase in total exports is very insufficient. In the first month of the year, exports increased slightly, while imports fell by 6 percent, distorting foreign trade expectations.
Exporters want “empathy”
Speaking to DW Turk, exporters are urging the Central Bank to take action on foreign exchange rates. Jacques Eskinazi, Coordinator of the Aegean Exporters’ Unions (EIB), said that the Turkish lira, which is becoming more and more valuable, is threatening thousands of exporting companies. EBRD President Eskinazi said that as exporters, they always expect a “low, predictable rate”, “I urge everyone to be empathetic. Imagine that the exporter who received an order in November was around $ 8.50. From 7.05 these days. Inflation peaked. “How will the exporter continue production, how will he pay the workers, how will he get the raw materials?” He said.
“Dollar exchange rate should not fall below 7.35”
Noting that world trade is expected to increase by 8 percent in 2021, Eskinazi said, “There is an environment where we can increase our exports. In this environment, we want an exchange rate to support our exports. Exporter.” Mediterranean Furniture, Paper and Forest Products Exporters Association (AKAMİB) Vice President Bülent Aymen, Turkey’s current exchange rate will have a negative impact on growth, he said.
Aymen emphasizes that the dollar exchange rate is around 7.40-7.60 and the euro is around 8.80-9.10:
“It’s not just something we want for exporters. A contribution should offer at least a two-fold increase in Turkey’s growth. This contribution should also provide jobs for established exporters. Intervening in the establishment of the Central Bank as soon as possible should be competitive at the exchange rate.”
Aram Ekin Duran
© Deutsche Welle Turkish