Turkey's Lira Continues to Depreciate: An In-Depth Analysis of Economic Structure and Policy Failures

Lira Depreciation Has Become the Norm: Warning Signals Behind the Data

The Turkish Lira (TRY) has been one of the most volatile currencies globally over the past decade. Its performance since early 2025 has been particularly notable—at the beginning of the year, USD/TRY was around 35–36, and by mid-year it surged to approximately 42, a decline of over 20%. This is not mere fluctuation but a concentrated outbreak of long-term imbalance.

The history of the Lira’s depreciation actually dates back further. At the end of 2001, the Lira to USD exchange rate plummeted to 1,650,000:1. The Turkish government was forced to implement major reforms in 2005, introducing a new exchange mechanism (1 new Lira = 100,000 old Lira), and officially renamed it the “Turkish Lira” in 2010. This painful currency reform history itself highlights the depth of structural issues.

The Three Roots of Depreciation: Policy, Economy, and Politics

The ongoing depreciation of the Turkish Lira is not driven by a single factor but results from intertwined issues.

First Layer: Central Bank Credibility Crisis

The core problem lies in unconventional monetary policies. In recent years, the Turkish government has repeatedly cut interest rates amid rising inflation, a “counterintuitive” move that directly undermines market confidence in the independence of the central bank. Businesses and the public have sold off Lira, shifting to strong currencies like USD and EUR, exacerbating capital outflows.

Second Layer: Structural Dependence on Imports

Turkey’s economy is highly reliant on imports—from energy to raw materials, most transactions are settled in USD. Whenever the Lira depreciates, import costs soar, pushing up inflation, which in turn further erodes investor confidence in the Lira, creating a vicious cycle. Currently, Turkey’s inflation rate remains in double digits, further limiting the central bank’s policy space.

Third Layer: Political Uncertainty

In recent years, risks from local elections, policy shifts, and international relations fluctuations have made foreign investors more cautious about Turkish assets. For example, the March 2025 detention of Istanbul’s mayor triggered market panic, causing a sharp short-term depreciation of the Lira, reflecting high sensitivity to political risks.

Current Exchange Rate Trends and Short-term Outlook

As of mid-November 2025, USD/TRY hovers around 42. From a technical perspective, the Lira remains in a clear depreciation channel, with occasional rebounds but lacking substantial momentum to reverse the trend.

While the central bank’s rate hikes provide temporary support, they cannot fundamentally resolve the high inflation and structural issues. In the short term (1-3 months), the Lira is expected to continue oscillating within the 40–42 range, with the central bank’s interest rate decision at year-end being a key focus.

For major currency pairs like USD/TRY and EUR/TRY, the medium-term trend remains range-bound, with long-term direction depending on whether Turkey can implement substantive economic and policy reforms.

The Lira as an Investment Asset: Risks and Opportunities

The Lira is a typical “high-risk, high-volatility, high-interest-rate” asset, unsuitable as a hedge or long-term holding, but more appropriate for experienced traders seeking short-term arbitrage.

From an investment perspective, the Lira features:

• Monthly volatility often exceeding 10%, offering short-term trading opportunities
• A long-term downtrend, making gains from appreciation very difficult
• If optimistic about Turkey’s reform prospects, adopting a phased entry approach to diversify risk

Main Ways to Participate in Lira Trading

For investors interested in exposure to the Lira, there are three main channels:

Bank Currency Exchange — Lowest threshold but limited liquidity. Some Taiwanese banks offer Lira cash orders; advantages include controlled risk, but disadvantages are large spreads and difficulty profiting from appreciation. Confirm availability by phone beforehand to avoid last-minute shortages.

Futures Market — The CME (Chicago Mercantile Exchange) offers USD/TRY futures, but it’s an obscure product with low trading volume and liquidity, and most brokers do not open it to retail investors, making actual trading difficult.

Forex CFD Trading — Compared to the above, CFDs have lower entry barriers, longer trading hours, and flexible two-way operations. Investors can use margin trading to control larger positions with less capital, and platforms usually offer various related currency pairs (e.g., USD/TRY, EUR/TRY).

Travel and Living Cost Reference in Turkey

For Taiwanese tourists planning to visit Turkey, the impact of Lira depreciation includes:

• Exchange rate: approximately 0.23–0.24 TWD per Lira
• Price levels: a cup of coffee costs about 15–25 TRY; a local meal about 50–100 TRY
• Exchange tips: use banks for currency exchange to avoid street exchange scams (hidden spreads of 10–20%)
• Tipping culture: about 10% tip for dining and taxis

Investment Warnings and Future Outlook

The Turkish Lira is unlikely to reverse its depreciation trend in the short term unless the following conditions improve:

1. Substantive results from the central bank’s economic reforms
2. Significant decline in inflation levels
3. Political stability
4. Signs of restored foreign investor confidence

Investors should closely monitor key dates such as the December central bank rate meeting and 2026 inflation data. If the Istanbul Stock Exchange Bank Index experiences abnormal declines, increased caution is warranted, as this may signal accelerated foreign capital withdrawal risks.

Overall, although the Turkish Lira is rarely a focus for ordinary investors, its clear trend characteristics and turning points make it suitable for short-term operations by those with high risk tolerance, volatility awareness, and basic economic analysis skills. Investors are advised to choose trading tools carefully based on their risk capacity and experience, and to stay informed on macroeconomic and political developments to improve judgment accuracy.