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Lira hits record low: USD/TRY analysis, January 12, 2024


USD/TRY forex analysis

The Turkish lira has recently hit a significant milestone, reaching an unprecedented low in comparison to the US dollar. The USD/TRY exchange rate has surged above 30.00, marking a historic breach that prompts a closer examination of analysts' forecasts and the potential for a recovery in the value of the lira.


This downturn in the lira's value is not an isolated incident; rather, it's emblematic of a more extensive and concerning trend affecting the Turkish economy. Over the past year, the currency has experienced a substantial depreciation, losing approximately 37% of its value relative to the US dollar.


At the heart of this depreciation is Turkey's ongoing struggle with rampant inflation, consistently maintaining double-digit figures. In response to this economic challenge, the central bank has taken a decisive turn, opting for a series of interest rate hikes. This departure from a previous unconventional policy, where Ankara resisted interest rate increases, was partly influenced by President Recep Tayyip Erdogan, who famously referred to high-interest rates as the "mother of all evil."



The situation in Turkey, home to around 84 million inhabitants, has become increasingly dramatic. In December, the annual inflation rate surged to 64.8%, a modest increase compared to November's 62%, but a notable improvement from the peak of 85.5% observed in October 2022.


The far-reaching consequences of the lira's depreciation extend beyond the financial realm, impacting the everyday lives of Turkish citizens. The currency has lost over 80% of its value against the US dollar over the past five years, significantly inflating the costs associated with imports and foreign debt. This, in turn, has seriously eroded the purchasing power of ordinary Turks.


USD/TRY monthly chart, MetaTrader, 12.01.2024

Under the leadership of Erkan, the Turkish central bank has responded assertively to address the economic challenges. The main interest rate has witnessed a substantial increase, rising from 8.5% to 42.5%. This move underscores a clear and resolute commitment to stabilizing the economy.


While there has been some semblance of stabilization in the Turkish lira following the implementation of rigorous monetary policy tightening and financial sector reforms by the newly appointed economic management team, analysts at Commerbank note that a complete return to the inflation target will take considerable time. Consequently, the market remains uncertain about its support for President Tayyip Erdogan. As the situation unfolds, it becomes increasingly evident that the charts tell a compelling story, one that demands close attention and analysis.



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