The Real Value of the Turkish Lira Continues to Rise

The Central Bank of the Republic of Turkey (CBRT) has announced the Real Effective Exchange Rate (REER) data for November. According to the reported figures, the CPI-based real effective exchange rate index increased from 64.84 in October to 67.03 in November. This rise indicates that the Turkish lira has gained real value and that the prices of Turkish goods continue to rise in terms of foreign goods.

The real effective exchange rate is calculated by removing relative price effects from the nominal effective exchange rate (NEER). The NEER is the weighted average value of the lira against a basket of currencies from countries that have a significant share in Turkey's foreign trade. The weights are determined using bilateral trade flows. The REER is computed by taking the weighted geometric average of the ratio of Turkey's price level to the price levels of the countries it trades with.

Comparative graphics with different countries show that, according to the Central Bank's data, the Emerging Market-Based Real Effective Exchange Rate increased from 52.45 in October to 53.90 in November. Meanwhile, the Developed Countries-Based Real Effective Exchange Rate rose from 74.65 to 77.62 during the same period. These indices indicate that the lira has gained real value against both emerging market and developed country currencies.

The index value of the producer price index-based real effective exchange rate also rose from 94.50 in October to 96.42 in November. The CPI REER index indicates that the real effective exchange rate is calculated with the CPI deflator, while the PPI REER index indicates that it is computed with the PPI deflator. Both indices provide important insights into the real value of the lira and the international competitive strength of the Turkish economy.