Slight Increase in the Real Value of TL Based on CPI in December

The Central Bank of the Republic of Turkey (CBRT) has announced the Real Effective Exchange Rate (REER) data for December. According to the data, the CPI-based real effective exchange rate index increased from 67.02 to 67.12 compared to the previous month. This increase indicates that the Turkish lira has appreciated in real terms, and the prices of Turkish goods have risen compared to foreign goods.

The REER index based on developing countries decreased from 53.91 to 53.81 in December, while the REER index based on developed countries rose from 77.59 to 77.94. The producer price index-based real effective exchange rate (Yi-REER) fell from 96.88 to 96.65.

What is Real Effective Exchange Rate? The nominal effective exchange rate (NEER) represents the weighted average value of the Turkish lira against a basket of currencies from countries that have significant shares in Turkey's foreign trade. NEER is calculated using weights determined by bilateral trade flows. The real effective exchange rate (REER) is derived by adjusting the NEER for relative price effects.

In the REER calculation, the ratio of Turkey's price level to the price levels of the countries it trades with is taken into account. The CPI REER is calculated using the consumer price index (CPI), while the Yi-REER is calculated using the domestic producer price index (Yi-PPI).

The Importance of REER An increase in the REER indicates that the Turkish lira has appreciated in real terms and that Turkish goods have become more expensive compared to foreign goods. This situation may have implications for Turkey's export competitiveness. On the other hand, a low REER suggests that the Turkish lira is cheaper in real terms and that Turkish goods have become more competitive compared to foreign products.