Head of Turkish Exporters: FX rate is the real indicator for inflation

The exchange rate should be directly proportional to inflation levels, the head of the Turkish Exporters Assembly (TIM) said Tuesday.

Mustafa Gültepe said the stability in the Turkish lira, despite soaring inflation, is hurting exporters’ competitiveness and some risk losing markets. However, he did not propose a specific lira level.

“In order for us to compete and sell our goods if inflation is 60% for example, then the exchange rate should move by 60%,” Gültepe maintained during an interview with Reuters. “Otherwise, the exports side and the production side come to a halt.”

Gültepe’s comments come as authorities have employed a battery of regulations to tightly control the exchange rate in the wake of a deep slide in the lira in late 2021, a year in which the Turkish currency lost 44% to the U.S. dollar.

The currency dropped another 29% this year, but has stabilized since the summer and held steady near TL 18.6 since early October.

Meanwhile, price increases moderated in Türkiye in November, official data showed this week, signaling that inflation pressures that have been plaguing consumers for about a year and a half might be finally easing.

The annual consumer price index (CPI) dipped to 84.39% last month, ending a 17-month-long cycle of rises. Officials have blamed the inflation on high commodity costs, mainly caused by Russia’s invasion of Ukraine, as well as other external factors.

The earlier lira depreciation gave exporters of Turkish textiles, white goods and automobiles a big competitive edge globally. But since the central bank and government employed its reserves-management system, those benefits began to erode.

“The important thing, in the long run, is to reduce inflation. But at points when you can’t reduce it, the exchange rate must be supportive. Otherwise, we lose markets,” Gültepe added.

One of the main drivers of Türkiye’s economic growth this year, exports hit record-high volumes throughout the first 11 months of this year. Yet, a global slowdown has put a drag on foreign demand, notably among Türkiye’s largest trade partners, spearheaded by Europe.

Outbound shipments rose 1.9% year-over-year to $21.9 billion in November, while imports jumped 14% from a year earlier to $30.7 billion, driven mainly by steep rises in energy and commodity prices after Russia’s invasion of Ukraine. Foreign trade volume rose 8.6% from a year ago to $52.51 billion.

Exports from January through November jumped 14% from a year ago to $231 billion, while imports were up 36.6% to nearly $331.1 billion, the data showed. Foreign trade volume was up 26.3% to $562.35 billion.