ITO President Şekib Avdagiç Highlights Concerns Over Inflation and Exchange Rate Gap
Significant Disparity Between Inflation and Exchange Rate
Şekib Avdagiç, President of the Istanbul Chamber of Commerce (ITO), has raised alarm over the widening gap between inflation and the exchange rate. He noted that while the average increase in TURKSTAT and ITO price indices over the last year was 66%, the dollar-Euro basket rate rose by only 25.2%, resulting in a gap of over 40%. Avdagiç warned that if this disparity remains unchecked, it could lead to a permanent decline in exports and a rapid increase in imports in the second half of the year.
Impact on Exports and Imports
Avdagiç emphasized that the persistent gap negatively impacts exports while favoring imports. He stressed the importance of maintaining a close correlation between the exchange rate and inflation to avoid destabilizing effects on both foreign trade and the domestic market. He predicted that the gap would eventually close but highlighted the need for careful management of this process to ensure economic stability.
Foreign Investment and Currency Valuation
Avdagiç acknowledged the significant inflow of foreign investment into Turkey, particularly in government bonds, following a slowdown in inflation since June last year. However, he cautioned that these inflows could lead to an overvaluation of the Turkish Lira (TL). He called for a balanced approach to investment, incentives, interest, and foreign exchange policies to maintain economic stability.
Inflation Trends and Projections
Discussing recent inflation figures, Avdagiç noted that the annual Consumer Price Index (CPI) increase, which peaked at 75.45% in May, had decreased to 71.6% in June. He projected that if monthly CPI increases remain around 2%, the annual CPI inflation could fall below 50% in the coming months. He emphasized that reaching this threshold would not only have psychological benefits but also improve pricing behavior.
Trade Relations with Neighboring Countries
Avdagiç also highlighted the importance of strengthening economic ties with neighboring countries. Despite having a trade surplus with its neighbors, Turkey’s exports to these countries account for only 12-13% of its total exports. He stressed the potential for growth in this area, noting that good neighborly relations are essential for boosting trade. Avdagiç praised recent efforts to improve relations with Azerbaijan and other neighboring countries, emphasizing that strong commercial ties can help overcome various challenges.
In summary, Avdagiç’s remarks underscore the critical need for Turkey to address the gap between inflation and the exchange rate, manage foreign investment inflows carefully, and strengthen trade relations with neighboring countries to ensure sustained economic growth and stability.
The dollar should be at least 37 liras today
Mustafa Gültepe, President of the Turkish Exporters Assembly (TIM), pointed out that neither the overvalued TL nor the undervalued TL will benefit the exporters and said, “The aim here is for Turkey’s exporters to survive. The cheapest thing in Turkey is foreign currency. If you ask me, the minimum exchange rate today should be 37 liras, minimum.”
Turkish Exporters Assembly (TIM) “2024 First 6 Months Export Evaluation Meeting” was held yesterday. TIM President Mustafa Gültepe made evaluations about the first half performance of exports as well as current problems and expectations regarding the economy at the meeting organized with the participation of TIM Sectors Council members.
Commenting on the exporters’ exchange rate statements, TİM President Gültepe said: “Neither overvalued TL nor undervalued TL will benefit any of us. The aim here is for Turkey’s producers and exporters to stay afloat and stay relevant for the future, so when you look at developed countries, these people have come somewhere from production. What do you think is the cheapest thing in Turkey? Foreign currency… If you ask me, the minimum exchange rate today should be 37 liras, minimum.” “The inflation exchange rate difference should not be more than 5 points” Mustafa Gültepe said that companies should be removed from the high cost low exchange rate trap for exports of 267 billion dollars targeted for the end of the year.
Emphasizing that it is vital to remove the obstacles in front of exporters as soon as possible, Gültepe said that exports are the most effective and the only way to effectively fight inflation without cooling the economy. Gültepe used the following statements regarding his expectations from the economic administration in order to regain momentum for exports in the short term: “The exchange rate should move in parallel with inflation, the difference between inflation and the exchange rate should not be more than 5 points, the tax burden on the import of raw materials and intermediate goods that are not produced domestically or cannot meet the demand should be eased, regulations that will bring additional burden to producers and exporters and further damage competitiveness should be reviewed, energy costs such as electricity and natural gas used in production should be kept to a minimum as far as conditions allow.