Never mind the policy interest rate! Bring foreign exchange rates back in line!
“Don’t expect any surprises.” That’s what I say to those who ask what decision the CBRT will issue on Thursday. The CBRT’s hands are tied and that is why it cannot introduce a drastic hike before the elections. Besides, it fears that a big increase might disrupt the country’s GDP. In the meantime, despite the efforts made to kill public interest in the KKM scheme, Turkish people have not stopped investing in on foreign currency.
As I look at the US Dollar to Turkish Lira exchange rate chart, I realize that Turkish people indeed have memory problems. One dollar, which was around 19 Turkish liras before the elections, is sold for around TRY 29 as of this morning. I’m talking about an increase of nearly 50%. I don’t understand why people are angry with those who say that the dollar might climb up to TRY 50, given that the US currency has increased incredibly in just a couple of months. We have another election ahead of us, and then another to look forward to. I wonder why it seems so improbable for the dollar’s exchange rate to lira to increase by 50% to TRY 45 and even TRY 50?
Two years ago in November, Selçuk Geçer was almost “cancelled” for saying that the dollar first would be TRY 15 and then 20. When he said this, one dollar was equal to 12 liras. He was under fire for mentioning a 25% increase. I met with him at a panel in January 2022 and to console him I said, “You were right. It will even get worse!”
And eventually, the price of one dollar, which was 12 liras two years ago, climbed quite rapidly, especially over the past five months, as predicted by Geçer and it is traded for 29 Turkish liras today. We are just shy of four months until the elections, and six months until the CPI hits its peak level. There is no guarantee that USD to TRY exchange rate, which has increased by 50% in the last five months, will not increase again, especially when the net official reserves held by the CBRT are in a negative territory, around $-50 billion, inflation continues to rise, the most needed funds do not flow in the economy and the CBRT Chair’s continuity in office is not certain.
Turkish people who travel abroad frequently, either for work or vacation, experience the depreciation of their national currency at first hand. Whether they go the east or the west of Europe, they spend at least six times more money compared to five years ago, even if the European prices remain mostly unchanged. People’s income in Turkey, however, did not increase six-fold. As inflation rise all over the world, people’s incomes become smaller and smaller, incapable of allowing people to enjoy even the simplest pleasures that money can buy.In order for an ordinary Turkish citizen to go abroad as easily as they did five years ago, their Turkish lira income must have increased ten-fold.
All my observations and past experiences tell me that exchange rates will hit much higher levels in the coming period. In order for us to win over the inevitable more quickly, the Central Bank must avoid putting pressure on the dollar’s exchange rate.
