Turkey’s Lira Set to End 2024 with Smallest Decline Since 2020

Turkey’s lira is on track to close 2024 with its smallest annual decline since 2020, driven by the authorities’ push for real appreciation and the currency’s appeal to carry-trade investors amid high interest rates.

The lira has depreciated 16.5% against the U.S. dollar this year. As of 11:04 a.m. in Istanbul it was trading at 35.36 per dollar, down 0.1% on the day. 

The dollar-lira exchange rate is often seen as a barometer of Turkey’s economic health by local investors. Once among the most volatile currencies in emerging markets, the lira has made a gradual recovery in real terms since its steep 2021 decline, when it lost nearly half its value against the dollar.

Through its strategy of real appreciation, the central bank aims to keep the currency’s losses below trailing inflation, hoping to minimize inflationary pressures by reducing the pass-through impact of a weaker currency. This policy has driven the lira’s CPI-based real effective exchange rate to its highest level since February 2021, according to November data.

The Turkish central bank has indicated that this approach will continue into next year. In its 2025 monetary policy report, released last week, the bank said that lira-denominated assets will remain attractive to investors, bolstered by the expected continuation of the disinflation process.