Increase in TRY’s real effective exchange rate ends

The Consumer Price Index (CPI) based real effective exchange rate (REER) fell in March to 65.71 after 3-month increase, according to the Central Bank. 

REER saw the historical lowest level with 60.52 in November 2020, when the economy management changed. REER exceeded 62 in December 2020, reached 66 in January 2021 and surpassed 69 in February.

Nominal effective exchange rate is the weighted average value of the TRY relative to the basket of the countries’ currencies that have a significant share in Turkey’s foreign trade. 

Weights are determined using bilateral trade flows. As for real effective exchange rate, it is obtained by purifying relative price effects in nominal effective exchange rate.

If REER decreases, TRY will depreciate in real terms, i.e., the price of Turkish goods declines.

The change in the index is closely monitored in terms of reactions of the Central Bank’s value changes in TRY on inflation.

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