Forecasting Exchange Rates
It is not easy to reliably estimate what exchange rates will be next year. However, there are econometric models for this specific forecast.
For instance, to predict the 2024 year-end’s USD to TRY exchange rate, you could devise a formula involving the current exchange rates and parameters such as money supply, current balance, inflation, etc. in the US and Turkey. With this highly functional formula, based on the changes in the macroeconomic figures of the two countries, you could determine what the exchange rate should be, rather than what it will be, if, of course, free market system continues to prevail.
Some business people often use a simpler formula, claiming that USD to TRY exchange rate will increase in line with inflation, while others say that it will follow the minimum wage hikes. In fact, there is no absolute formula to find what the exact rate will be in the future since it could be affected by unforeseen events. However, when the money supply is expanded recklessly, for no valid reason, it leads to higher inflation, which makes it inevitable for the national currency to depreciate rapidly. This is a fact. In Turkey, for example, exchange rates are constantly manipulated by the government, not to mention the fact that the exchange rate had climbed even higher by 35-40% after the elections.
I do not know what will happen at the end of 2024, but I can say that, in 2024, USD to TRY exchange rate might rise up to 40% of its current level, or even higher. Sharp rises always end with sharp falls. But the efforts made to prevent this acute volatility cause a continuous rally in exchange rates.
It seems like inflation rate will be at least 45-50% in 2024. However, I do not think that the Central Bank will increase policy rates to 50% before the elections because of the 33% CPI target set in the MTP. Doing that will mean accepting the defeat in advance.
So, in short, 2024 is likely to be a year full of uncertainties. Sadly, there are no expectations for positive developments either. Most of the uncertainties revolve around the expected troubles.
