Critical Turkish Lira analysis from the German giant: 'Considering the inflation level...'

Germany-based Commerzbank drew attention to the difference between inflation and the increase in the exchange rate in its latest assessment of the Turkish Lira. Tatha Ghose, Senior Economist of the Bank, emphasized that the increase in nominal exchange rates falling behind high inflation could cause the Turkish Lira to gain in real terms, increasing the risk of sharper depreciations in the future.

A 20 PERCENT VALUE LOSS IS INSUFFICIENT

Ghose stated in his report that the Turkish Lira's nominal depreciation of approximately 20 percent on an annualized basis in recent months created a misleading appearance.

Ghose stated that the increase in the exchange rate remained slow in the face of inflation, which is in the 30-35 percent range, and noted that this picture indicates that the Turkish Lira continues to gain value in real terms.

THE DIFFERENCE BETWEEN INFLATION AND EXCHANGE EXCHANGE CAUSES RISK

Stating that the exchange rate follows a gradual and stable course, but this pace is not enough to eliminate the real value gain, Ghose included the following evaluation in his report:

The nominal depreciation that has occurred in recent months is not rapid enough to cancel out the real appreciation or move the exchange rate towards its fair value. Considering the level of inflation, the Turkish Lira continues to strengthen in real terms.

According to Commerzbank's analysis, the gap between inflation and exchange rate increase not closing delays the balancing in the market. This situation keeps the risk of the Turkish Lira experiencing more severe and cumulative depreciation in the coming period.