On the date of writing this article 18/10/2021, the exchange rate of the Turkish lira against the US dollar is 9.29, up from 8.28 just 45 days ago, i.e., on 09/03/2021.
This increase of 13.2% during this short period of time is considered a significant increase.
What are the reasons for the depreciation of the Turkish lira?
- Reducing interest rates at the Central Bank meeting from 19% to 18%
The Central Bank took this step in its last meeting on September 23, based on the following:
- Increasing the speed of vaccination with anti-coronavirus vaccines globally, especially in developed countries, supports the recovery process in the global economy.
- He explained that despite the increase in vaccination rates, the new strains of the virus keep the negative risks alive on global economic activity.
- He stated that the main indicators indicate that the domestic economic activity is moving strongly in the third quarter, driven by external demand.
- He indicated that the positive external demand conditions and the tight monetary policy being implemented positively affect the current account balance.
- It is expected - according to the statement - that there will be a surplus in the current account in the remainder of the year, as the strong upward trend in exports and the strong acceleration of vaccination stimulate tourism activities.
- He stressed that the Turkish Central Bank will firmly continue to use all the tools available to it until strong indicators appear indicating a permanent decrease in inflation and the target of 5% is being achieved in the medium term in line with the main objective of price stability.
- President Recep Tayyip Erdogan intervened in the policy of the Central Bank
The lira has lost about 15% of its value against the dollar since the beginning of 2021.
Bloomberg was unanimous in keeping the rate stable, although one economist had forecast a 0.5% cut.
Erdogan had earlier described interest rates as the "source of all evil" and last month declared they should be lowered until inflation goes down, contrary to economic orthodoxy.
Earlier this month, Central Bank Governor Şehab Kocıoğlu told investors that he expects consumer prices to decline in the coming months and that the bank will now look at "core" inflation - which is below 17% after excluding volatile items such as food and fuel for future decisions.
Kocıoğlu is the fourth governor since 2019 after Erdogan fired three central bank governors because they either raised borrowing costs or they didn't save them fast enough.
This is the first cut under Kocıoğlu, after much and unconfirmed speculation in Ankara this month that he will face a similar fate if he does not cut the rate.
Economists criticized the "risky" decision.
- Concerns about high rates of inflation and the consumer price index
The Turkish economy suffers from the dilemma of choosing between achieving a growth rate - which comes at the expense of the deterioration of the lira's exchange rate - or choosing the stability of the lira's exchange rate, which comes at the expense of economic downturn.
Erdogan seeks to overcome this dilemma by pushing economic growth through lower interest rates, but in return this leads to high inflation rates and a deterioration of the exchange rate.
The low interest rate benefits goods of Turkish origin; Thus, it becomes more competitive, but in return the economy as a whole loses; Since Turkey depends on imports, especially for raw materials and intermediate goods, which erodes citizens' savings, and the difficulty in covering external obligations, especially the repayment of debt in foreign currency; This adds additional burdens on the private sector and foreign currency borrowing institutions.
Is this the right time to invest in real estate?
The foreign investor holds the foreign exchange and therefore every depreciation of the Turkish lira is an additional gain for him, especially if he takes the step quickly before real estate prices are adjusted based on the new exchange rate, we must not forget that the prices of building materials and fuel needed by construction machines directly depend on its price, therefore, there is no doubt that every project under construction (which is investment projects) will set a new price list commensurate with the high exchange rate in favour of foreign currencies against the Turkish lira.
Your purchase now using cash or instalment payment method is useful to you and I will explain to you why:
Cash payment in which the buyer gets the highest discount rate and therefore the highest discount rate + a high exchange rate for the foreign currency owned by the investor against the Turkish lira = double profit.
As for the payment of instalments, you will pay a down payment in Turkish lira equivalent to a lesser amount of dollars that you own after the exchange rate change, after that you will pay in instalments in fixed Turkish lira instalments and therefore with time every decline that affects the Turkish lira against the dollar is an additional gain for you and a premium that you pay less if you calculate it in dollars.
What are you waiting for? Contact us so our advisory team will guide you to the best investment opportunities in Istanbul.
Economic Sources:
TRT Arabic
France 24
Aljazeera
