During trading on the Moscow Exchange, the Turkish lira rate fell below 2.9 rubles for the first time in history, as follows from the data site sites. Experts interviewed by Izvestia on March 5 explained that this weakening is due to the high level of inflation in Turkey.
“There are a number of factors in the Turkish economy that fundamentally lead to the depreciation of the lira. This is a stable foreign trade deficit, the government’s policy of increasing domestic fuel prices in the country, a constant increase in salaries for civil servants, minimum wages and pensions, as well as an increase in utility tariffs. This leads to the fact that high inflation remains in the country, and the policy of the Central Bank (CB) of Turkey to raise rates does not lead to a significant monetary effect,” said Alexander Potavin, an analyst at Finam Financial Group.
Inflation in the country remains high, despite the high Central Bank rate (45% per annum). Its annual rate rose to 67.07% in February.
Potavin drew attention to the fact that at the same time the ruble exchange rate was somewhat strengthening relative to the dollar exchange rate. As a result, the lira exchange rate against the dollar has already lost 7.28% since the beginning of the year, while the ruble exchange rate against the dollar has weakened by only 0.6% over the same time. According to him, this implies the weakness of the lira to the Russian national currency.
“As for the tourism business, such a decrease in the exchange rate of the national currency for Russian citizens is, on the one hand, beneficial, since for the same amount of rubles a vacationer receives more liras, but on the other hand, prices for Turkish hotels and services in liras have also increased,” – added Nikolai Vavilov, specialist of the strategic research department at Total Research.
According to him, the further dynamics of the lira exchange rate completely depends on the actions to tighten the monetary policy of the Turkish Central Bank.
“The fact is that national local elections will be held in this country on March 31, and a number of experts predict a tightening of monetary policy (monetary policy – Ed.) after the reporting date due to increasing price pressure on the Turkish lira and domestic demand, although The Central Bank considers the current key rate of 45% sufficient to reduce inflationary processes,” Vavilov noted.
In turn, Potavin suggested that perhaps the gradual normalization of foreign trade and high lending rates of the Central Bank will still have a positive effect and by the end of 2024 the Turkish lira exchange rate will not show such a significant weakening as it was in 2023 (58.5 %).
“We expect a devaluation of the lira against the dollar this year by 35–40%, which means the USD/TRY pair may reach 40. As for the ruble against the lira, we are expecting a new phase of weakening of the ruble in the second half of 2024, so a decline in TRY/RUB can be expected around 2.1 [рубля]“, the analyst concluded.
Earlier, on January 25, it was reported that the monetary policy committee of the Central Bank of Turkey decided to increase the discount rate by 250 basis points, to 45%. The regulator noted that in December 2023, overall inflation increased in accordance with the forecast, however, the existing level of domestic demand, the persistence of inflation in the service sector and geopolitical risks continued to exert inflationary pressure.
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