Turkish Lira falls historically lowest real value

By bne IntelliNews October 7, 2015

The real effective exchange rate (REER) of Turkey's lira fell to its lowest level ever in September, losing a third of its value against the dollar, according to the central bank as the entire region is wracked by currency instability. 

The lira (TRY) fell from 95.09 in August to 90.95 in September, the lowest real value since the REER index was first calculated in January 2003, Turkish Central Bank announced on October 6. A decline in the REER represents a depreciation of the TRY in real terms. REER’s August value was also its lowest since April 2003.

The Turkish lira has tumbled this year, losing about a third of its value against the dollar to fall through the psychologically important TRY3 to the dollar, as political uncertainty, security concerns weigh on investor and consumer confidence. The Turkish economy continues to feel the effects of the country’s escalating violence and political instability at a time when it should be benefiting from tumbling oil prices. As long as political uncertainty and violence in the country’s mostly Kurdish southeast continue the lira is likely to remain under pressure.

Moreover, the higher than expected inflation adds to concerns. Consumer prices rose by 0.89% m/m in September (Reuters survey: 0.80% m/m), bringing the annual inflation rate from 7.14% in August to 7.95%, data of the statistics office showed on October 5. Morgan Stanley recently argued that currency depreciation is likely to damage the inflation outlook in the last quarter of the year. In line with this, the investment bank increased its year-end CPI expectation to 8.0% from 7.6%. Fitch revised its 2015 inflation expectation up to 7.1%, reflecting the depreciation of TRY, and expects a 6.4% inflation next year based on the assumption of more currency stability and a tightening policy from the central bank, Fitch Ratings Senior Director Paul Gamble said on September 22. End-year inflation expectations rose to 7.98% y/y in September on the back of higher than expected August inflation.

The falling currency, on the other hand, hasn’t boosted exports as much as expected because the generally glum economic mood in the rest of Europe has hit Turkish exports. These trade dynamics combined to undo some of the benefits of the lower energy prices, slowing the fall in the country’s current account deficit, Basci commented on September 29. Turkey’s exports fell 20% y/y, the sharpest decline recorded in 2015, in September due to three-day long festive holiday, said the Turkish Exporters’ Assembly (TIM) on October 1. 9-month decline in exports stood at 10% y/y.

REER of TRY
Jan-03 89.55
Dec-03 101.44
Dec-04 102.48
Dec-05 119.60
Dec-06 109.88
Dec-07 127.73
Dec-08 110.70
Dec-09 112.61
Dec-10 119.19
Dec-11 102.74
Dec-12 110.30
Dec-13 100.95
Jan-14 95.86
Feb-14 96.49
Mar-14 96.91
Apr-14 102.49
May-14 104.64
Jun-14 104.05
Jul-14 104.20
Aug-14 103.61
Sep-14 103.13
Oct-14 103.81
Nov-14 106.94
Dec-14 105.51
Jan-15 108.34
Feb-15 105.42
Mar-15 103.75
Apr-15 102.15
May-15 100.63
Jun-15 98.36
Jul-15 99.75
Aug-15 95.22
Sep-15 90.95
source: tcmb

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