Turkish Lira in Freefall: A Look at the Euro Exchange Rate Since January 1, 2021

The Turkish Central Bank (TCMB) concluded its final Monetary Policy Committee meeting of the year with yet another interest rate cut, a move widely anticipated by the market following weeks of speculation. The central bank lowered the benchmark interest rate by one percentage point, triggering a fresh surge in the Dollar/Turkish Lira exchange rate, which briefly touched 15.52 before settling in the 15.35-15.40 range.

This morning, the upward trend continued. Starting from a close of 14.81 on the previous day, the Dollar/Lira exchange rate jumped by 2.77% to 15.22 by 11:00 AM local time, underscoring the ongoing volatility and depreciation of the Turkish currency.

Since the beginning of the year, the Turkish Lira has experienced a dramatic collapse in value against the US dollar, exceeding 100%. Starting from 7.43 on January 1, 2021, the lira’s devaluation has now surpassed 107%. The Euro has also seen significant gains against the Turkish Lira, trading at 17.23 in free market exchanges.

The Euro to Turkish Lira exchange rate, which stood at 9.07 on January 1, 2021, has appreciated by 91% against the Turkish currency over the past year. This substantial increase highlights the extent of the Lira’s weakness and the increasing cost of Euro-denominated goods and services for Turkish citizens.

Professor Hurşit Güneş, an academic from Marmara University, voiced his concerns in a conversation with VOA Turkish, stating that the rational economic approach would have been to hold interest rates steady, or even implement a rate hike. He argued that the Central Bank, having lost its independent standing, has been deviating from sound economic principles for the last three months.

Professor Güneş elaborated, “My expectation, and what is rational, would have been to at least skip the rate cut at this meeting. However, as the brother of the Treasury Minister mentioned to Bloomberg HT yesterday, a ‘one percentage point rate increase’ seems more likely. That is a higher probability. What else can the Central Bank do? As you know, the Central Bank Governor himself stated this month that the room for rate cuts was narrowing. Perhaps, to support this, they might deliver a 0.25 or 0.50 point cut to signal, ‘my cutting period is now closed.’ However, the policy set by the FED makes a rate cut by the Central Bank almost impossible for the coming year.”

The current Central Bank Governor, Professor Şahap Kavcıoğlu, assumed his position after Naci Ağbal, known for his commitment to central bank independence, was dismissed. Prior to his appointment, Kavcıoğlu had expressed his opposition to high interest rates in his columns for the Yeni Şafak newspaper.

Despite his previous stance, during his first five Monetary Policy Committee (MPC) meetings, Professor Kavcıoğlu initially maintained the policy rate at 19%, citing the impact of the pandemic. However, starting in September, the Central Bank initiated a series of rate cuts, reducing the policy rate from 19% to 15% with a 100 basis point cut in September, 200 points in October, and another 100 points in November.

These decisions have coincided with a significant weakening of the Turkish Lira. On September 1st, the Dollar/Lira exchange rate was 8.30 TL. Today, it trades at 15.22. The Turkish Lira’s depreciation since these rate cuts began has reached 85%, highlighting the rapid erosion of the currency’s value and the stark reality of the 1 Ocak 2021 Euro Kuru now being a distant memory of relative stability.