Table of Contents
Although we are a site that provides investment consultancy services related to the issue of real estate in Turkey, today we will maintain neutrality to serve the topic of the article and we will address the following points related to the Turkish lira and the US dollar, which are:
- What is the behavior of the Turkish lira over the past years against the US dollar?
- What are the real factors that led to the decline of the Turkish lira against the US dollar in this way in previous years
- What is the behavior of the Turkish trade balance in previous years between imports and exports
- What is the expectation for the behavior of the Turkish lira against the US dollar in the coming years.
Thus, we have answered most of the questions that the reader who is looking for the title of this article needs. In conclusion, we will mention the correlation of the movement of the Turkish lira with the appropriate time to buy investment properties.
1- What is the exchange rate of the Turkish lira against the US dollar between 2011 and 2021?
The above chart shows the behavior of the Turkish lira against the US dollar since 2011 where the exchange rate every 1 US dollar equals 1.744 Turkish liras until 2021 in the month of October (the date of writing this article) and we have every 1 US dollar equals 8.97 Turkish liras.
And let’s study the rates of increase according to each year in percentage terms. This will lead to a better understanding of the behavior of the Turkish lira against the US dollar each year:
|Year||Open price||ClosePrice||Change rate|
|Total for 10 years||1.89||9||175%|
|Average per year||17.5%|
We note that the years prior to 2018, the interest rates were close to the average for each year (17.5%), and even if we calculate the average for these six years alone, we will find an average of 12.8%, while if we calculate the average for the following four years, we will find that the average: 24.5% and from it we can say that the year 2018 is The difference year was the change in the exchange rate ratios between the beginning and end of each year, and this certainly has a major role in the increase in inflation rates and thus will affect the consumer price index.
2- What are the real factors that led to the decline of the Turkish lira against the US dollar in this way in previous years?
We know that the political reason for the decline of the Turkish lira in 2018 is the detention of the American pastor for his participation in planning the military coup that occurred in 2016, but what about the economic reasons and the impact of this political event on it?
Reasons for retraction:
The declining performance of the Turkish lira is due to a set of political and economic factors that can be clarified as follows:
1- The conflict with the Central Bank: Turkish President Recep Tayyip Erdogan raised many fears in the financial markets due to his sharp statements towards the Turkish Central Bank, which revealed his intention to intervene in the formulation of monetary policy after his victory in the elections, despite the decline in the severity of his statements in the days Finally, this obsession is still strongly present, as many analysts see that it has temporarily retreated from its position; Where President Erdogan had previously announced in an interview with businessmen at Bloomberg headquarters that he would intervene to prevent any rise in interest rates in order to preserve the facilitation of the investment climate in Turkey. He also announced in another statement that raising interest rates is the basis of evil.
2- The high trade balance deficit: The trade balance records an increasing deficit in favor of trading partners, which naturally leads to the decline of the Turkish currency against other currencies. The month of March 2018 witnessed a rise in the Turkish current account deficit to $4.812 billion, compared to $4.5 billion in the previous month. The current account deficit for February 2018 was 60% higher than in February 2017. This is due to the high cost of energy import borne by the government.
The report of the European Commission issued in the spring of 2018 indicates that the current account deficit rose at the end of 2017 to 5.6%, while the trade balance deficit rose to 8.8%, which increases the pressure on Turkish competitiveness.
3- The turbulence of the regional situation: The turbulent conditions in the Middle East and the mechanisms of the Turkish government’s handling of it are one of the factors affecting the value of the lira. It is noted that the value of the currency has begun to decline with the increase in Turkish intervention in Syria, and the escalation of the conflict with the Kurdistan Workers’ Party, in addition to this. Continuing turmoil in the internal situation in light of Erdogan’s restrictions on his political opponents with regard to civil liberties and political practices, and the tightening of the security grip.
Repercussions of the decline:
The declining trend of the Turkish lira over the past years has led to an increase in the risks facing the Turkish economy, which has greatly raised the concerns of investors, despite the government’s statement that it puts facing these risks at the top of its priorities. In this context, the most prominent repercussions of the currency devaluation can be mentioned as follows:
1- The high level of inflation: the losses of the Turkish lira against foreign currencies led to a decline in its purchasing power, and thus the rise in the inflation rate, which has become one of the biggest risks facing the Turkish economy, as the annual consumer inflation rate reached an estimated 12.2% in May 2018, This is an increase of 1.3% over the month of April 2018.
2- The credit rating decline: The value of the currency is one of the indicators of the strength or weakness of the economy. The losses of the Turkish lira have led to a decline in the confidence of credit rating agencies in the Turkish economy. At the end of May, Moody’s lowered its estimates of the growth of the Turkish economy for 2018 from 4% to 2.5%. It also downgraded 17 Turkish banks and two other financial institutions, justifying this as a result of declining investor confidence and rising uncertainty about the Turkish economy.
In the same context, rating agency “Fitch” announced that it has placed 25 Turkish banks in negative status, which means that they may be subject to a credit rating downgrade, and cited “increasing operating environment pressures resulting from fluctuating currency and interest rates” as a major driver of the warning.
3- High indebtedness: the losses of the Turkish lira raise the value of loans and debts denominated in US dollars, which includes the private sector, the banking sector, and the external debt of the government, as the private sector has foreign currency loans totaling 295 billion dollars, while the value of debts owed by Turkish banks is $600 billion, according to the Bank for International Settlements (BIS) in Switzerland. Independent research firm Autonomous Research expects a rise in bad debts in Turkish banks.
In the same context, an expert at Dutch bank ABN Amro said that the biggest concern for investors is Turkey’s dependence on foreign funds, as Turkey must provide the equivalent of about $200 billion annually to finance the wide current account deficit and the outstanding creditor, which seems difficult. With total foreign exchange reserves of only $85 billion.
4- Transfer of savings: The fears of savers about the devaluation of the lira led them to convert their savings in the local currency into the US dollar and other foreign currencies, fearing that the value of their savings and their purchasing power would decrease as the value of the Turkish lira depreciated, as foreign currencies such as the euro and the dollar represented a safe haven for them.
Now we will move on to talking about the Turkish trade balance and then conclude with the future expectations of the exchange rate based on the data we have.
3- What is the behavior of the Turkish trade balance in previous years between imports and exports
The main problem in Turkey is its inability to extract and benefit from the underground resources according to a treaty that ends in 2023, and therefore it is always forced to import natural gas and oil for use in transportation, industries, and commercial and domestic consumption. Therefore, imports have always been higher than exports, even despite the significant improvement in exports during In recent years, the depreciation of the Turkish lira against the dollar has helped, which has encouraged traders and importers from all over the world to buy Turkish goods. Some analysts even said that the devaluation of the Turkish lira was intended to increase exports.
As a result, the Turkish trade balance remained a loser despite the growth of exports significantly, but it was always less than imports. For example, in the current year 2021, Turkey was able to export 210 billion dollars, but on the other hand, imports during the same period were about 250 billion dollars, in Last year, 2020, exports were $170 billion, despite the negative effects of the Covid-19 virus, but at the same time, imports for the same year were $221 billion, and thus the trade balance remained a loser.
To provide an overview of the period between 2013 and 2019 for exports and imports, we present the following:
Imports, whose value in 2013 was about $220 billion, decreased to nearly $200 billion in 2019.
Here we note a clear growth in exports, which in 2013 was less than 155 billion dollars, to reach in 2019 about 187 billion dollars.
However, comparing exports and imports leads to the same result, which is a losing trade balance.
4- What is the expectation for the behavior of the Turkish lira against the US dollar in the coming years.
It is worth noting that this particular issue is related to many interrelated political, economic and other reasons, including:
- What is the political situation in the region in the coming years and what is Turkey’s role in it.
- What will happen after 2023 when Turkey will be able to extract and use natural gas and oil and this will reduce imports significantly.
- What will be the situation of Covid 19 around the world in general and in Turkey in particular.
- Will exports continue to increase and imports to decrease, and will the Turkish trade balance be equal?
- What will be the policy of the Turkish Central Bank towards interest rates, the higher the interest rates, the better the value of the Turkish lira, and the lower the interest rates, the more negatively it will be reflected on the performance of the Turkish lira.
- The approach that the President of the Republic will take, whether the Justice and Development Party continues to lead Recep Tayyip Erdogan or the Republican Party wins in the next presidential elections in 2023.
And many other direct and indirect reasons, so the prediction until 2025 will never be possible accurately, but we will present a forecast based on the technical analysis of the Turkish lira and the US dollar currency pair:
5-What is the ideal time to buy investment properties?
We also noted through the article that the exchange rate of the Turkish lira is related to many things and it is very difficult to predict its behavior in the coming months and years. On the other hand, the investor owns money in foreign currencies, and this means that the depreciation of the Turkish lira against foreign currencies means a property at a cheaper price for the investor, and thus a larger profit margin .
On the other hand, investment real estate prices rise dramatically, sometimes up to 10% each month. Therefore, waiting for a year to get the right opportunity may mean missing out on the opportunity to double your investment capital.
The solution to that is the following: If you are a novice investor and want to buy only one property, the advice is to buy your property now because the increase in its price over time is guaranteed, while the increase in the value of the foreign currency you own against the Turkish lira is a matter of expectation and not guaranteed.
If you are an advanced investor and want to buy a group of real estate, you can start your first investment from now, and whenever you get a special opportunity regarding the exchange rate, you can boost your investment with a new property (for example, in 2018, the value of the dollar against the Turkish lira was 4.7 and due to political events, it became 6.6 during Less than a week, and this is a unique opportunity to enhance your investment with a new property) / (In 2021 the dollar exchange rate against the Turkish lira increased from 8.3 to 9.25 in less than two months, and also here a suitable opportunity was formed to enhance real estate investment).5