Why is the dollar rising in Turkey while falling in the world?

As of today, the dollar-TL rate became one of the three currencies that melted the most against the American currency in the world. US Dollar Index (DXY) Among 37 national currencies, only two countries’ currencies have lost more value than TL against the US dollar in the last month.

Although the gap between the free market and the official exchange rate in the US dollar TL parity is gradually widening, the statistics clearly reflect that the melting in the TL has accelerated, even if the Central Bank’s dollar rate is taken as a basis.

As of April 18, 2023, that is, yesterday, in the comparison of 37 national currencies with global convertibility, 24 currencies gained value against the dollar in the last month, while the value of 4 currencies did not change against the dollar. 9 currencies lost value against the US dollar. While the loss in 6 of these 9 currencies whose value has depreciated is less than the Turkish Lira, only the Philippine Peso and the Russian Ruble have lost more value than the TL. TL has lost 2.05 percent in the last 1 month at the official exchange rate and became the third most depreciated currency against the dollar among 37 countries.

In the same period, the Russian Ruble melted by 6.14 percent, while the Philippine Peso lost 2.55 percent.

However, when we go beyond the official rates and take the free market dollar rate as a basis, the depreciation of the TL against the dollar reaches 6.8 percent on a monthly basis, which means that the TL depreciates more than the Russian Ruble in the free market. In other words, although TL is officially the third most depreciating currency against the dollar, in practice (in other words, considering the price encountered when visiting any exchange office), it seems to be at the top of the list of currencies that depreciate the most.

Why is the dollar-TL rate rising fast?

So what actually lies behind this extreme meltdown of TL? Here are the main reasons that local and foreign analysts agree on:

• The Central Bank of the Republic of Turkey continued to cut interest rates with the opposite policy, while all the world central banks drew their weapons against the inflation experienced all over the world, including the USA.
• As a result of this, the belief that the interest rate cut schedule is approaching due to the slowdown in inflation, especially from the USA, in interest rate hike races.
• On the other hand, although the rate of increase in inflation in Turkey is decreasing due to the base effect, there is still no expectation for 2023 below 50 percent inflation.
• In this process, although it is not officially accepted, the general view is that the CBRT uses reserve sales to suppress the rise in the dollar rate and continues to implement artificial measures to prevent foreign exchange demand within the framework of the monetary policy focused on Liraization.
• Due to the decrease in the foreign exchange liquidity in the market, companies that have to export and, more importantly, import in order to export, show an inevitable demand for these foreign currencies.
• Currency Protected Deposit, which is brought as a precaution against individual and corporate foreign exchange demands, which cannot be prevented in practice, is not much different from foreign exchange deposit accounts and there are doubts about its sustainability.
• After the election, the increase in expectations that there will be an inevitable rise in the dollar-TL parity and these expectations accelerate the demand for dollars outside of KKM, while the demand shifted to the under-the-counter markets due to the suggestions of the banks to “reduce your foreign exchange demand for customer demands”

In fact, these reasons, summarized among dozens of other reasons, are shown as the most important reasons for the reverse divergence of the Turkish Lira according to the course of the dollar in global markets.

US Dollar Index (DXY) confirms global decline

The US Dollar Index (DXY), one of the most important indicators of the global value of the dollar, has melted 9 percent in the last 6 months and 2.10 percent in the last 1 month. DXY, which returned from its near-term peak with 105.82 on March 8, hit the bottom with 100.842 on April 14. Although it had a short-term rise on April 17 due to concerns about the Fed’s policies, it started a downward trend again with 101,715 today. This is the most important indicator that the dollar has lost strength in all global markets. The ranking in our news actually confirms this trend.