Turkish lira falls against dollar
By Ellada Khankishiyeva
Head of Trend Analytical Center
Recent devaluation of the Turkish lira was caused by political and economic developments in Turkey, as any change in the politics changes the expectations of economic entities.
According to the Turkish Central Bank, the dollar has strengthened by 13.2 per cent compared to the Turkish lira since early 2013.
It would be wrong to connect the unwanted decreases in the lira to the uncertainty of U.S. Central Bank ( Federal Reserve System) policy. This is because earlier, the Turkish lira had always resisted news from the Federal Reserve. Internal instability coupled with expectations of a possible military strike against Syria was the catalyst for a drop in the lira. As of October 3, 2013, the dollar compared to the lira was 2,02230 TRY / USD.
Turkey is not indifferent towards the strengthening of U.S. currency because it is still among the countries actively using dollar in foreign trade operations. On the one hand, the current ratio of the dollar and the lira does not hamper Turkish exporters to do business without problems. On the contrary, the devaluation of the lira, logically, suits it. The exchange difference in the trade is a source of additional revenue. Weakening of the lira will help the country's economy increase the competitiveness of goods. As it is known, Turkey's economy is based on services, tourism and food. In this respect, the weakening of the lira will have a positive economic effect. The opportunity of business activity falling in Turkey is not ruled out in case of the lira rate decrease for a long time.
As for the import relations, a cheap dollar has advantages for Turkey. According to the Turkish Minister of Energy and Natural Resources Taner Yildiz, the dollar rate decrease in the country will greatly reduce the expenses for energy imports. As the country's central bank forecasts, if the dollar rate compared to the Turkish local currency drops up to 1.80 lira in 2014 and does not undergo significant changes during the year, the expenses for energy imports will be reduced by at least 12-13 per cent, Yildiz said.
"In this case, we will be able to save about $7 billion in energy imports during the year," Minister said.
The matter rests in the fact that Turkey is dependent on energy imports. Turkey buys oil and gas in foreign currency, but sells petroleum products in Turkish lira. It is not in the interest of the country in this case in terms of dollar growth. The increase in the dollar rate leads to a relevant increase in domestic energy prices, as was observed with petrol costs in Turkey, which rose in price twice in July.
According to the Turkish Energy Market Regulatory Authority's latest data (EPDK), oil imports to Turkey increased by 0.1 percent reaching 10.6 million tons in January-July 2013 compared to the same period in 2012. During the same period, imports of diesel fuel increased by 6.4 percent up to 5.3 million tons compared to the same period in 2012.
A dollar exchange rate exceeding two lira will have a negative effect on the amount of the country's external debt. Despite the annual decline in Turkey's external debt, it is mainly concentrated in dollars. As of 2012, Turkey's external debt amounted to $101 billion.
Earlier, head of the Turkish Central Bank Erdem Bashcı said that the dollar rate in Turkey is projected to be 1.80 TRY / USD next year.