Commerzbank analysis on Turkish Lira: Inflation and exchange rate gap pose risks
German bank Commerzbank has announced that the real appreciation of the Turkish Lira against inflation increases the risk of sharp losses in the future.
Germany-based Commerzbank shared potential market risks in its assessment of the Turkish Lira, drawing attention to the mismatch between inflation and nominal exchange rate increases.
Nominal and Inflation Gap
Commerzbank Senior Economist Tatha Ghose stated that the nominal exchange rate increase in the Turkish Lira has fallen behind high inflation. It was stated that this situation leads to real appreciation in the currency.
Misleading Appearance
Reminding in his report that the Turkish Lira has lost approximately 20 percent of its nominal value on an annualized basis in recent months, Ghose noted that this picture creates a misleading appearance.
Real Appreciation Process
While emphasizing that the increase in the exchange rate has remained slow against inflation hovering in the 30-35 percent band, it was conveyed that the Turkish Lira continues to strengthen in real terms.
Risk of Sharp Depreciation
It was stated that the failure to close the gap between inflation and exchange rate increases delays rebalancing, and a warning was made that sharper and cumulative depreciations could be experienced in the coming period.