In a sense, let’s say the last thing at the beginning and answer the question in the title…
After the local elections on March 31st, there is very little or even almost no possibility of a climb in the dollar, as was the case after the elections in May last year.
Neither the conditions of the period leading up to this election are the same as the last election, nor the rise in the dollar or the accumulated sediment…
Let’s try to explain why we think this way by supporting it with data…
It’s our never-ending anxiety; we always think that one day the dollar will go up…
Especially if the exchange rate has been flat or close to flat for a long period of time, the belief that this escalation is inevitable becomes more and more prevalent…
And we are not wrong to think so; there have been periods when the dollar has exploded. The last one was after last year’s elections.
We are now experiencing similar concerns. We think that the exchange rate has been flat for a long time and that it will be unchained after the elections.
But there are some details we have overlooked.
Let’s first look at last year’s data…
We created a dollar index by taking September 2022 as 100. Accordingly, the dollar, which was 100 in September 2022, rose to 107.68 in May 2023. The eight-month increase was only 7.68 percent. The next two months, as I mentioned in the introduction, were the disastrous months in which the low increase in those eight months took its toll.
Let’s come to this year…
This time, to take the eight pre-election months as a basis, we take the dollar exchange rate in July 2023 as 100. The February average of the dollar has been 30.45 liras so far. We can assume that the February average will be 31 liras and the March average will be 32 liras. In this case, the dollar index, which was 100 in July 2023, will increase by 21 percent to 121 in March 2024.
Now pay attention; the increase in the dollar in the eight months before last year’s election was about 8 percent, while the increase in the eight months before this year’s election was 21 percent.
The 8 percent increase in the last pre-election period was followed by a 34 percent increase in two months.
-Will the 21 percent increase before this year’s elections be followed by another 34 percent increase in two months? No!
Imagine what it would be like if the dollar, which is already likely to average 32 liras in March, increases by another 34 percent in a few months!
By the way, there is no doubt that inflation should also be taken into account when making assumptions about the exchange rate increase, but that is a topic for another article.
The policy rate was set at 8.5 percent until June 23 last year, when it was raised to 15 percent.
When the rate was raised to 17.5 percent on July 21 by only 2.5 percentage points, when forecasts were for at least a 5 percentage point increase, pessimism prevailed in the market and all this resulted in a rapid increase in the foreign exchange rate.
But now the interest rate is 45 percent and this rate will not change for a long time.
Regardless of whether 45 percent is enough or not, at least there is a big difference between last year’s rates.
So there is a very different level between last year and this year in the main factor that determines the change in the value of the currency, such as interest rates. Even if all other factors are the same (which they are not), there is a significant difference in the level of interest rates.