I would like to remind you of the fact that the recent fall in exchange rate is a previous experience which has been tested multiple times over the last 5 years.
Sometimes reaching peak levels at fast pace, sometimes remaining stable within a narrow band for months from 2013 up until today, foreign currency has always appreciated against Turkish lira… Here’s a flashback: 5 years ago from now, USD/TRY was standing around a level of 1, 80. Yesterday, it almost hit 4, 40. But, what does it all mean?
Here’s a short explanation: It means that Turkish Lira has depreciated by 140% over the last 5 years. In other words, Turkish Citizens become impoverished by 150-200% compared to developed countries’ currencies. Obviously, the annual income of any regular Turkish citizen did not increase by 240% in the past 5 years. Since 2013, salary/wage increase in various jobs has varied between 40% and 70%, except for those who got a promotion.
I wonder whether there’s anyone in the business world who has been able to increase their revenue by 140%, which is the depreciation rate of TRY. The answer is unclear. After all, business people do not avoid taking risks to obtain more profit. However, neither in Turkey nor anywhere in the world, companies simply can’t grow their revenue as high as this. Only stocks can bring you such high profit. We also see that the last 5 years did produce a cumulative inflation slightly higher than 50%, which shows that companies have not been able to raise their prices so easily because of fragile demand while simultaneously facing cost pressure. It’s really hard to attract foreign investment under the circumstances. Accordingly, it is almost not possible to achieve exchange rate stability without foreign capital.
At this point, it can be seen that Turkey, who has no other option but to import raw materials-intermediate and investment goods in order to produce, is being torn apart by sharp rises in exchange rates, which cannot possibly be balanced by interest rate hikes. So, in my opinion, the current stable mood of exchange rates may be the calm before the future rises.