Although the CBRT operated a controlled devaluation of the lira ahead of local elections – the currency has depreciated by 8% against the dollar and 6% against the euro year-to-date – further devaluation is likely over the coming months given shrinking net foreign assets of USD 6.9bn at end-March, down from USD 27.2bn at the end of 2023.
This would be a repeat of what happened in June 2023 when the currency fell 20% against the dollar (23% against the euro), and 36% in 2023 (39%), increasing the price of energy – which accounts for around 20% of imports.
Still, a weak currency is not the only source of inflationary pressure. The disinflation process could be delayed by a further rise in the minimum wage after the almost 50% increase in January this year. Fiscal policy is also tighter but generally still accommodative following the February 2023 earthquake. The headline fiscal deficit is running at TRY 425bn…
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