Goldman Sachs Warns Turkey Will Allow Further Acceleration of Lira Depreciation Against the Dollar, Lira Has Fallen Approximately 97% Over the Past 15 Years
Turkey May Accelerate Lira Depreciation
Goldman Sachs warns that Turkey will allow the lira to further accelerate its depreciation against the dollar, with the lira having cumulatively fallen about 97% over the past 15 years.
This expectation reflects pressures on Turkey's monetary policy and foreign exchange reserves, with continued depreciation exacerbating import costs and inflation risks.
Turkish exporters may benefit in the short term from increased competitiveness, while import-dependent businesses and the public face pressure; capital is accelerating its outflow from lira assets towards dollars and hard assets for safety, with emerging market currencies shifting from managed floating to quicker adjustments under event-driven conditions, amplifying regional financial volatility.
Source: Public Information
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Turkey has previously allowed the lira to depreciate in an orderly manner multiple times amid high inflation and political cycles, briefly stabilizing through reserve interventions but failing to reverse the long-term trend.
On the capital front, policymakers prioritize exports and debt management, with strategic motives aimed at alleviating external pressures, but continued depreciation undermines local savings and the ability to attract foreign investment.
Similar to the long-term depreciation path of the Argentine peso and other emerging market currency crises, Turkey is currently in a deepening phase of the high inflation-depreciation spiral.
Essentially, this is a concentration of capital: accelerated currency depreciation drives capital outflow, with the mechanism being a combination of loss of confidence and loose policies, concentrating capital towards dollar assets and commodities, further weakening local currency pricing power and financial stability.
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The longer the depreciation lasts, the faster the loss of confidence.
In high inflation countries, the currency is the biggest victim.
After a 97% drop, acceleration is just a new starting point.