While the dollar/TL exchange rate rose to 15.25 today, experts shared with sozcu.com.tr the main reasons for the rise and their forecasts for the future.
Exchange rate stability has deteriorated in recent days. The dollar, which has been in the 14.50-15.00 range for about two months, crossed 15 yesterday while the exchange rate was 15.25 today. The euro exchange rate was also 16.14 today.
After hitting 18.36 on December 20, 2021, the dollar, depressed by a series of temporary measures, notably the Central Bank’s (CBRT) sale of reserves and currency-hedged deposits (KKM), reversed direction higher again.
Economists said the CBRT has been attempting to keep exchange rates at certain levels with covert sales of around $30 billion in reserves over the past four months, but warned it is becoming increasingly difficult to keep exchange rates amid the current low interest rates to keep interest rates, high inflation, high current account deficit and low reserve levels.
Experts explained to sozcu.com.tr the reasons for the rise in exchange rates and what could happen next.
“FINANCIAL STABILITY IS SLOWLY CRACKING”
Economist Murat Kubilay said: “Financial stability, based on running surpluses and capital inflows, based on currency-hedged deposits and covert reserve sales, is slowly crumbling.”
Recalling that the financing of the current account deficit, which worsened again with the outbreak of the Ukraine war, thanks to the KKM was attempted to counteract the deteriorated currencies due to the sharp rise in energy prices around the world, the economic leadership laid the new line of defense 15 TL instead of 14 and listed the factors that increased the pressure on the exchange rate as follows:
“The lack of anticipated capital inflows from alternative routes such as the Gulf States, the lack of FX reflows to KKM and the demand for FX due to the high energy price trajectory; It increased the pressure with the key monetary policy tightening decisions of the central banks worldwide, above all the US Federal Reserve.
NEW CURRENCY SHOCK ALERT
Kubilay pointed out that the global dollar appreciation of 5-7 percent in recent weeks is the trigger for breaking the exchange rate’s line of defense: “The uptrend of the exchange rate will continue in the short term, but there is still enough stress accumulation for a disproportionate explosion in November and December last year. But from the second half of 2022, the conditions for a new shock are in place,” he warned.
Kubilay pointed out that unless economic management shifts to more ordinary policies, the previously experienced scenarios could be experienced more severely: “Meanwhile, measures restricting the freedom of capital but lacking strict capital control are increasing. Although this delays the demand for foreign exchange in the short term, it harms long-term stability due to the associated uncertainty.
‘AUTHORIZED BY EXPORT REGULATIONS’
“Does the CBRT allow the exchange rate to appreciate because the real exchange rate has appreciated and the advantage in foreign trade has decreased? Or has the loss of reserves, the current account deficit and the appreciation of the dollar index made it more difficult to keep the exchange rate at the old level? effective to a certain extent” and came to the following assessment:
“The increase in producer inflation is much higher than the increase in the exchange rate, which reduces the exporter’s competitiveness. Additionally, as global currencies depreciate against the dollar, the relative competitiveness of the TL decreases. Because of this, there is already a segment that wants a rising exchange rate.”
“We know that the exchange rate has been intervened with reserves, the limit has not yet been reached there, but it is clear that the medium-term prospects are risky,” said Kırıkoğlu, adding: “While there is short-term relief with low energy bills and Tourist arrivals in summer, we will again talk in winter about the issues that came to the fore last year. For now, I think controlled easing is allowed due to export concerns,” made his assessment.
“TWO FACTORS”
Emre Akçakmak, Senior Advisor at East Capital, pointed out two main factors behind the exchange rate appreciation.
“First, the Fed’s hawkish stance and the resulting pressure on emerging market interest rates from rising US bond yields. This situation, in the context of risk aversion, affects fragile economies such as Turkey, Chile and Colombia and weakens the exchange rates of commodity exporters such as Brazil and South Africa with the expectation of a recession,” Akçakmak explained the second factor, saying:
“As Turkey-specific developments, competitiveness lost rapidly with high inflation and the inevitable increase in foreign trade deficit. If you don’t have enough reserves to cushion the impact in the near term, the result of the current dynamics in the language of the universal economy is exchange rate weakness, and we can say that we are witnessing that right now.”
Akçakmak said that in the coming period, the KKM transition whose rate of increase has slowed, salary increases that follow inflation, the tourism season that is expected to be weak due to the war, the additional costs and pass- This will cause the rising exchange rate KKM and the potential upward pressure on inflation are among the salient risk factors.
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