The real effective exchange rate index dropped by 0.63 points in August, marking the first decline in the Turkish Lira’s real value since March.
The real value of the Turkish Lira experienced its first decline in five months, as indicated by the latest data from the Central Bank of the Republic of Turkiye (CBRT). According to provisional figures, the real effective exchange rate (REER) index, adjusted for consumer price inflation (CPI), decreased by 0.63 points in August 2024, dropping to 62.34 from the previous month’s 62.97.
A Closer Look at the REER Index
The REER index is a key indicator used to assess the value of a country’s currency relative to its major trading partners. It is adjusted for inflation, making it a critical measure of a currency’s competitiveness. In August 2024, the Turkish Lira’s REER dropped to 62.34, a decline that reflects the currency’s decreased purchasing power compared to its value in previous months.
Producer Price Index (PPI) Impact on Turkish Lira Value
In addition to the CPI-adjusted REER, the Producer Price Index (PPI)-adjusted REER also saw a significant decline. The index fell by 1.94 points, from 94.69 in July to 92.75 in August. This indicates a reduction in the competitiveness of Turkish goods in international markets, as the PPI measures changes in the prices of goods at the wholesale level.
Yearly Comparison of TL Value
Despite the monthly decline, the Turkish Lira has strengthened compared to the same period last year. The CPI-adjusted REER has increased by 9.78 points since August 2023, while the PPI-adjusted REER has risen by 7.25 points. This indicates that, on a year-over-year basis, the Lira has regained some of its value, although the recent monthly drop suggests new challenges ahead.
Key Factors Behind the Decline
Several factors have contributed to the recent decline in the Lira’s real value:
- Inflationary Pressures: Persistent inflation in Turkiye has eroded the Lira’s purchasing power, impacting its real value.
- Economic Uncertainty: Fluctuations in global markets and domestic economic policies have introduced volatility in the currency.
- Trade Dynamics: Changes in Turkiye’s trade balance and export competitiveness have also influenced the REER.
Implications for the Turkish Economy
The decline in the Lira’s real value could have significant implications for the Turkish economy. A lower REER can make Turkish exports more competitive internationally, potentially boosting trade. However, it also suggests that the Lira is losing value relative to the currencies of Turkiye’s major trading partners, which could lead to higher import costs and contribute to inflationary pressures.
Turkish Lira Value Forecast: What’s Next?
As Turkiye navigates these economic challenges, the Central Bank’s monetary policy decisions and inflation control measures will be crucial in determining the Lira’s trajectory. The upcoming months will reveal whether this decline is an anomaly or the start of a new trend in the currency’s real value.
In conclusion, while the Turkish Lira has shown resilience over the past year, the recent decline in its real value serves as a reminder of the ongoing economic challenges facing the country. Policymakers and businesses alike will need to stay vigilant in monitoring these developments to mitigate potential risks.
Source: NTV / Prepared by Irem Yildiz