Neden Türk Lirası Düşmeye Devam Ediyor / Why The Turkish Lira Continues To Fall


Manufacturing activity in Turkey is contracting.

Moreover, this has adversely affected economic activity and lending rates in the country.

With further policy easing expected in Turkey, the lira should decline in coming months.

The Turkish lira is falling as manufacturing activity declines, weighing on economic growth, which is leading to policy easing. Since the start of 2015, the U.S. dollar has appreciated against the lira by nearly 20%.

In April, the manufacturing PMI figure came in at 48.5, above the previous month’s reading of 48.0, while also exceeding estimates for 47.8. A reading below 50 signals contraction. After peaking at nearly 55 in 2014, factory activity slowed considerably. Falling exports have been blamed for the weakness in the manufacturing sector.

“Turkey’s exports dropped at the steepest rate in six years, the data showed, despite a weakening lira against the dollar that traditionally supports the sale of Turkish goods abroad. Inflationary pressures also weighed on manufacturers, with input prices rising at the fastest rate since March 2014.

The latest PMI data signal an entrenched downturn in the Turkish manufacturing sector. Turkish goods producers face the unenviable combination of falling demand and rising inflation,” according to Market Watch.


Moreover, as factory activity declined, economic growth slowed. In the fourth quarter, the economic growth figure came in at an annual pace of 2.6%, up from the previous quarter’s revised reading of 1.9%, while also exceeding estimates for 2%. Economic growth, however, has trended below 5% annually since 2011, seen below. Weakness in investment and exports weighed on the growth measure

“The Turkish economy expanded 2.6 percent year-on-year in the last three months of 2014, compared with an upwardly revised 1.9 percent increase reported in the previous period.

Yet, considering full 2014, the GDP slowed sharply due to a drop in investment and lower household consumption,” according to Trading Economics.


Finally, volatile lending rates have also weighed on economic activity in the country. Since the start of 2014, lending rates have regularly been changed in the range of 4.5%, to as high as 10%. While the increases in the lending rate earlier in 2014 were an attempt to deter currency outflows, it also led to a slowdown in growth measures.

Currently, Turkey’s central bank has been slowly easing measures to spur economic activity again, but its currency has suffered. Policymakers are looking to adjust rates in the future according to changes in both inflation and the value of its currency.

“The ongoing cautious monetary policy along with prudent fiscal and macro-prudential policies are having a favorable impact on inflation, especially inflation excluding energy and food (core inflation indicators).

Yet, uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy.

Accordingly, the Committee decided to keep the interest rates at current levels. Moreover, it is assessed that a measured cut in the FX deposit lending rates and a measured hike in the partial remuneration rate on Turkish lira required reserves will support financial stability.

Future monetary policy decisions will be conditional on the improvements in the inflation outlook,” according to Trading Economics.

The Turkish lira could continue to weaken as factory activity declines, slowing economic activity as a whole. This will lead to further policy easing, causing outflows in the Turkish lira in coming months.


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