Exchange Rate in Turkey

Turkey - Exchange Rate

Lira slides to new record low amid rising geopolitical tensions

The Turkish lira traded at TRY 8.35 per USD on 30 October, which marked a 7.5% month-on-month depreciation and a new record low. Moreover, the currency was down 31.7% year-on-year and 28.7% year-to-date. The steep depreciation in recent weeks came on the back of rising geopolitical tensions in the region, dented investor confidence regarding the Central Bank’s policy and elevated inflation expectations.

Geopolitically, several disputes have weighed on the currency. Most recently, President Erdogan urged Turks to boycott French products following the French president’s remarks on Islam in the wake of the murder of a French teacher. Moreover, investors worry over greater Turkish intervention in the Azerbaijan-Armenia territorial dispute, among other regional conflicts, such as in Libya and Syria. Other points of concern are Turkey’s strained relationship with the United States following the purchase and testing of a Russian defense system, and lingering tensions with the European Union due to Turkey’s actions in the Mediterranean. Economically, investor confidence in the Central Bank has been dented by the Bank’s decision to hold fire in its most recent meeting, which went markedly against analysts’ expectations. On top of that, the Bank raised its inflation forecast from 8.9% to 12.1% by year-end.

Looking ahead, the lira is expected to remain under severe pressure against the USD through next year amid lingering geopolitical tensions, unorthodox economic policy, elevated price pressures and low real interest rates, as well as eroded institutional independence. Moreover, a twin deficit and continued uncertainty surrounding the evolution of the pandemic cloud the outlook, while the U.S. elections raise further questions over Turkey’s future relationship with the superpower.

FocusEconomics panelists are pessimistic on the lira’s outlook, with the panel forecasting the TRY to end 2021 at 8.20 per USD. In 2022, the lira is not expected to perform much better, ending the year at 8.37 per USD.