Turkey’s real effective exchange rate strengthened in September
The Central Bank of the Republic of Turkey (TCMB) has announced the results for the real effective exchange rate (REER) index for September.
The index, which is based on the Consumer Price Index (CPI), showed an increase of 0.45 points from the previous month, reaching 105.45. An increase in the real effective exchange rate indicates that the Turkish lira has strengthened in real terms against a basket of currencies from Turkey' s primary trading partners, adjusted for inflation differentials.
This serves as a key indicator of the country' s international competitiveness and economic stability. The index provides an overview of the currency' s purchasing power over time.
Generally, a higher index value suggests that Turkish goods are becoming relatively more expensive for foreign buyers, while imported goods are becoming cheaper for Turkish consumers and businesses. The strengthening of the real effective exchange rate can have dual effects on the Turkish economy.
On one hand, a stronger lira may make Turkish export goods more expensive in international markets, which could potentially reduce demand and weaken the country' s export industry.
This remains a significant factor, particularly regarding Turkey' s ambitions for export-led growth. On the other hand, a stronger REER can help curb inflation by making imported goods more affordable.
Lower import prices can reduce costs for raw materials and semi-finished goods for Turkish manufacturers, as well as lower the prices of finished imported products for consumers.
This constitutes an important tool in the Central Bank' s ongoing battle against inflation. For tourists, travellers, or foreign residents in Turkey, a strengthened lira may mean that visiting or living in the country becomes relatively more expensive, as their local currency will exchange for fewer lira for the same amount.
This can impact travel costs, hotel prices, and overall consumer spending. The Central Bank of Turkey monitors the real effective exchange rate closely as part of its monetary policy strategy.
The REER is an indicator that provides insight into underlying inflationary pressure and the country' s external balance.
The Central Bank seeks a balance between price stability and economic growth, in which the exchange rate plays a critical role. The development in the REER reflects a complex interaction between nominal exchange rates and price levels both in Turkey and among its trading partners.
A persistently stronger REER could challenge the competitiveness that Turkish companies require in a globalised economy, while simultaneously supporting the Central Bank' s goal of stabilising prices and strengthening purchasing power in the long term.
Source: Haberglobal
