Turkish Lira Further Increases Its Real Value Against CPI in October

The Central Bank of the Republic of Turkey (CBRT) has published the data for the Real Effective Exchange Rate (REER) for October 2024. According to the announced data, the real value of the Turkish lira showed an increase based on the Consumer Price Index (CPI). The CPI-based real effective exchange rate index, which was 62.86 in the previous month, rose to 64.82 in October.
This increase indicates that Turkish goods have gained value against foreign currencies, thereby increasing the prices of Turkish goods in terms of foreign goods. The real effective exchange rate is obtained by adjusting the nominal effective exchange rate (NEER) for relative price effects. These indices are calculated comparatively against the price levels of countries with which Turkey trades internationally, thereby measuring the international competitiveness of the Turkish lira.
An increase was observed both in emerging and developed countries. The real effective exchange rate for emerging countries rose from 51.14 to 52.42. For developed countries, this value increased from 71.97 to 74.63. This situation indicates that Turkey has enhanced its competitive strength in TL terms in both emerging and developed markets.
The producer price index-based real effective exchange rate also rose from 91.81 to 93.62. The producer price index-based REER reflects the real effective exchange rate calculated with the producer price index. The rise in both indices indicates a general increase in the real value of the Turkish lira, which could positively affect Turkey's foreign trade.
What is the real effective exchange rate and how is it calculated?
The Real Effective Exchange Rate (REER) is obtained by adjusting the NEER for relative price effects. The nominal effective exchange rate, which represents the weighted average value of the Turkish lira based on the currencies of countries that have a significant share in Turkey's foreign trade, when adjusted for real effects, yields the REER.
This index, calculated by the CBRT, is created by taking the weighted geometric mean of the ratio of Turkey's price level to the price levels of the countries with which it trades. The CPI REER is calculated with the consumer price index deflator, while the producer price index REER is calculated with the producer price index deflator. These indices reveal the global competitiveness and real value of the Turkish lira.