It is not possible to determine the “equilibrium” (equilibrium exchange rate) level of the exchange rate with precision on the basis of a single indicator or a single theory, because different methods measure different economic dimensions of the rate. The External Balance Assessment (EBA) approach takes into account the current-account balance, external financing conditions and possible misalignments in the real exchange rate. The purchasing power parity (PPP) approach assesses how the exchange rate should adjust over the long run in line with inflation and price-level differences across countries. The real effective exchange rate (REER) approach considers the real value of the Turkish lira together with the currencies and price levels of trading partners; the averaging method used here aims to identify a level that is more consistent with the historical path of the real rate over the past three years.
For this reason, EBA, PPP and REER methods are not expected to yield the same TRY/USD rate. One method may produce a lower TRY/USD rate and another a higher one. This divergence does not mean that one method is wrong; it shows that each method highlights a different economic relationship. The spread between methods therefore also conveys information about model uncertainty surrounding the estimated rate. Rather than a single definitive figure, it is more robust to combine the results of different methods into an average rate estimate accompanied by a range.
The table below presents a panoramic summary of the results obtained from our calculations:
| Indicator | Model value | Explanation |
|---|---|---|
| 25 Aug 2026 spot USD/TRY | 48.076 | Market starting point |
| EBA result | 60.525 | External balance / real overvaluation adjustment |
| PPP result | 69.171 | Türkiye–US relative inflation differential |
| REER result | 55.340 | Three-year average of the real rate |
| Equally weighted rate | 61.672 | Model outcome |
| Estimated “equilibrium” rate range | 55.968 – 67.377 | Estimate ± weighted model standard deviation |
1. Key inputs used in the calculations
The core inputs of the model are the initial and current spot rate, Türkiye and US inflation data, IMF assessments of real exchange-rate overvaluation, and CBRT REER values.
The variables used are shown in the table below:
| Input | Value | Period / source |
|---|---|---|
| USD/TRY starting rate | 26.5496 | 25 Aug 2023 – Exchange-rates.org |
| USD/TRY current spot | 48.076 | 25 Aug 2026 – Bloomberg HT |
| Türkiye annual CPI | 61.78% | July 2024 – TÜİK |
| Türkiye annual CPI | 33.52% | July 2025 – TÜİK |
| Türkiye annual CPI | 31.75% | July 2026 – TÜİK |
| US CPI-U | 305.691 → 333.918 | July 2023 → July 2026 – BLS |
| IMF REER overvaluation | 11.0% / 5.2% / 12.1% | 2023 / 2024 / 2025 – IMF ESR |
| Current REER | 105.96 | July 2026 – CBRT, CPI-based |
2. Three-year dynamic EBA approach
The logic of the EBA block is to construct an “equilibrium REER” for each year by stripping out the overvaluation rate assessed by the IMF from the observed real effective exchange rate (REER). The years 2023, 2024 and 2025 are then combined with approximately equal weights. In the final step, the ratio of the current REER to this equilibrium REER is applied to the spot USD/TRY rate.
First, approximate observed REER values for past years are reconstructed from a 2025=100 base. The calculations rely on assumptions of 11.9% real appreciation in 2024/2023 and 7.5% in 2025/2024.
2024 observed REER: 100 / (1 + 0.075) = 93.0233
2023 observed REER: 93.0233 / (1 + 0.119) = 83.1307
The IMF overvaluation rate for each year is then removed. When the real exchange-rate index is assumed to be overvalued, equilibrium REER is obtained by dividing the observed REER by (1 + overvaluation rate).
2023 equilibrium REER: 83.1307 / (1 + 0.11) = 74.8925
2024 equilibrium REER: 93.0233 / (1 + 0.052) = 88.4251
2025 equilibrium REER: 100 / (1 + 0.121) = 89.2061
| Year | Observed REER | IMF overvaluation | Equilibrium REER | Weight |
|---|---|---|---|---|
| 2023 | 83.1307 | 11.0% | 74.8925 | 33.33% |
| 2024 | 93.0233 | 5.2% | 88.4251 | 33.33% |
| 2025 | 100.0000 | 12.1% | 89.2061 | 33.33% |
| Average | 84.1746 |
Current REER / EBA equilibrium REER: 105.96 / 84.1662 = 1.25881
USD/TRY rate implied by EBA: 48.076 × 1.25881 = 60.5185 TRY/USD
Accordingly, the EBA approach produces an equilibrium rate of approximately 60.52 TRY/USD as of 25 August 2026.
3. Three-year relative purchasing power parity (PPP)
The relative PPP approach rests on the idea that if price levels in two countries rise at different speeds, the nominal exchange rate should move over the long run to offset this inflation differential. The model takes the rate of 26.5496 TRY/USD on 25 August 2023 as the starting point and applies the three-year relative price change between Türkiye and the United States to that rate.
Türkiye three-year price factor: (1 + 0.6178) × (1 + 0.3352) × (1 + 0.3175) = 2.845914
Türkiye cumulative price increase: 2.845914 − 1 = 1.845914 = 184.59%
US three-year price factor: 333.918 / 305.691 = 1.092338
US cumulative price increase: 1.092338 − 1 = 0.092338 = 9.23%
Relative price factor: 2.845914 / 1.092338 = 2.605341
USD/TRY rate implied by PPP: 26.5496 × 2.605341 = 69.1708 TRY/USD
The PPP model yields approximately 69.17 TRY/USD, the highest “equilibrium rate” among the three methods. The main reason is that Türkiye’s price level rose much faster than that of the United States over the three-year period under review. However, PPP should not be used on its own, as it does not directly incorporate capital flows, monetary policy, the risk premium, productivity or trade structure in the short run.
4. Three-year REER average
REER normalisation uses the average level of the real effective exchange rate over the past three years as a reference point. This method does not apply IMF overvaluation assessments directly; it treats the simple average of reconstructed real exchange-rate indices for 2023–2025 as the “equilibrium rate”.
2023–2025 average REER: (83.1307 + 93.0233 + 100.0000) / 3 = 92.0513
Current / average REER: 105.96 / 92.0513 = 1.151097
USD/TRY rate implied by REER: 48.076 × 1.151097 = 55.3401 TRY/USD
This approach yields approximately 55.34 TRY/USD. The result is lower than the EBA and especially the PPP outcomes; this reflects the method’s reliance mainly on the three-year average of the real rate.
6. Synthesising the three models to estimate the “equilibrium rate”
In the calculation, model weights are defined as EBA 33.33%, PPP 33.33% and REER 33.33%. Details are presented in the table below:
| Model | Equilibrium rate (TRY/USD) | Weight | Weighted contribution |
|---|---|---|---|
| EBA | 60.5247 | 33.33% | 20.1729 |
| PPP | 69.1708 | 33.33% | 23.0546 |
| REER | 55.3401 | 33.33% | 18.4449 |
| Average / Total | 61.6724 | 99.99% | 61.6724 |
Weighted equilibrium rate: 20.1729 + 23.0546 + 18.4449 = 61.6724 TRY/USD
The model also measures dispersion across the three methods using a weighted standard deviation. The weighted model standard deviation is 5.7047 TRY. The equilibrium rate ranges from 55.9677 to 67.3771 TRY/USD. This band shows how far the model results diverge from one another; it is not a probabilistic or statistical confidence interval.
7. Comparison with the spot rate
The ratio of the estimated “equilibrium rate” to the spot rate on 25 August 2026: 61.6724 / 48.076 − 1 = 0.28281 = 28.28%.
This calculation indicates that the “equilibrium rate” is approximately 28.28% higher than the TRY/USD spot rate on 25 August 2026.
8. Sensitivity analysis
The following table illustrates how sensitive the model is to alternative weight assumptions:
| Scenario | EBA weight | PPP weight | REER weight | Estimated TRY/USD |
|---|---|---|---|---|
| Alternative base | 50% | 25% | 25% | 61.39 |
| EBA-weighted | 60% | 20% | 20% | 61.22 |
| Balanced | 40% | 30% | 30% | 61.56 |
| Lower PPP weight | 55% | 15% | 30% | 60.27 |
Under alternative weight scenarios, the “equilibrium rate” ranges from approximately 60.27 to 61.56 TRY/USD.
9. Economic interpretation, uses and limitations
The daily or weekly USD/TRY rate can deviate from the model equilibrium for extended periods because of monetary policy decisions, reserve management, capital flows, the risk premium, global dollar liquidity, geopolitical developments, expectations and market microstructure. Therefore, one cannot conclude from an estimated “equilibrium rate” of 61.7 TRY/USD that “the exchange rate must certainly be at this level.”
The model is better suited to medium-term valuation work. It can be used as an alternative reference alongside the spot rate in corporate budgets, exchange-rate scenarios, investment feasibility studies, import-export pricing policies and currency-risk stress tests. However, CFOs and investors should treat this value not as a standalone trading signal but as a starting point for different scenarios.
Each of the three models also has its own limitations. The EBA result depends on IMF assessments and the reconstruction of historical real-rate series. PPP captures price-level differences strongly but neglects capital flows and the risk premium. REER normalisation treats the recent historical average as equilibrium and may not fully reflect structural regime shifts. Using the three methods together therefore provides a more balanced framework than relying on any single method.
10. Final assessment
For Türkiye, the “equilibrium rate” USD/TRY exchange rate as of 25 August 2026 is estimated at approximately 61.67 TRY/USD. The dispersion of results across methods points to a band of roughly 56.0 – 67.4 TRY/USD.
Data sources
| Source | Data used in the model |
|---|---|
| IMF External Sector Report 2024, 2025, 2026 | Türkiye REER/EBA assessments | imf.org/en/Publications/ESR |
| CBRT | CPI-based Real Effective Exchange Rate | tcmb.gov.tr |
| TÜİK | Consumer Price Index | data.tuik.gov.tr |
| U.S. Bureau of Labor Statistics | CPI-U | bls.gov/cpi |
| Bloomberg HT | 25 Aug 2026 USD/TRY market rate | bloomberght.com |
| Exchange-rates.org | 25 Aug 2023 historical USD/TRY rate | exchange-rates.org |
IMPORTANT NOTE: The terms “equilibrium rate” or “equilibrium exchange rate” used here refer to a theoretical/reference value calculated under the assumptions of the relevant model; they do not constitute a precise forecast, target or policy recommendation for the market exchange rate.
The calculations in this study are academic estimates based on specific data, methods and assumptions; they are not a definitive exchange-rate forecast or target rate. The information and assessments presented do not constitute investment advice or buy/sell recommendations. Changes in economic conditions, data and model assumptions may materially alter the results.
Comments
Comments are held for moderation and appear here only after approval. No account is required to comment.