The real interest rate of the Turkish lira isn’t satisfying the investor

Cyprus International University (CIU) Faculty of Economics and Administrative Sciences Academic Staff Assist. Prof. Dr. Asil Azimli, evaluated the rapidly increasing exchange rate in recent days, and advised, “The real interest rate of the Turkish Lira (TL) is unable to satisfy the investor and thus, they are turning to foreign currencies. The demand for foreign currency against TL has led to the increase of the price of foreign currency in TL”.

Reminding that currently, Turkey has an account deficit problem, Azimli went on to say, "The situation in relation to the current account deficit is a matter of foreign currency payments being made more than the amount of foreign currency earned from other countries, and due to this demand for foreign currency, it has resulted in the increase of the TL price for it".

Explaining that in this situation Turkey’s economic structure is another factor, Azimli went on to advise, “Relatively speaking, Turkey is not very good in producing value-added products. For example, when it comes to the value of the local currency, it results in a negative situation when the country sells tens of containers of vegetables to other countries, in exchange for foreign currency, and buys just a container of smartphones”.

Stating that there is a difference between economic and political concerns, Azimli added that investors want economic institutions to act independently of any political influences.

Reminding that the Dollar has been displaying a long-term trend in increase against the TL, Azimli went on to inform, "The sum of the factors listed above are the reason for this rising trend”.

Additionally drawing attention to the fact that during certain periods, sudden changes in exchange rates are experienced, Azimli advised that these sudden changes are the result of momentary agendas.

Assist. Prof. Dr. Azimli stated that it is the economic institutions that should be determining interest rates, and elaborated that in the cases where there is the political influence upon these institutions, the concept of the independence of these institutions are in turn damaged, and in such processes, investors prefer to act with caution. He also added that due to investors wanting to maintain their purchase power while simultaneously being concerned that the interest level would fall below the inflation level, they preferred to sell TL and buy foreign currency.

Reminding that a high-interest policy does not have a sustainable structure, Azimli concluded, “However, the interest policy is an important tool that is used to balance the supply of foreign currency within the country, while slowing down the increase in foreign exchange prices where it is necessary. The improvement of the structural problems is the only thing that can save TL from the long-term loss in value trend”.