OPINION: Why is it foolish to expect a TL rally?

“It is the FX reserves, stupid”… Actually this cryptic sentence is enough to prove that TL shall not rally below dollar/TL 7.00.  Or, I could throw another catch phrase out there:  “It is the balance of payments, stupid”.    How about another one?  “It is Joe Biden stupid!”.

Or, perhaps I should not write this opinion piece at all, because there is nobody out there who is convinced that TL will rally, except investment banking analysts who have lost touch with reality while crafting their beautiful, but useless econometric models.


Despite embellishments heaped upon the new economic management and prayers full of more orthodox policy to come, fund managers are not biting.  Amidst  the biggest EM booms in recent history, Turkey has drawn very little financial investment. There is no FDI, there hasn’t been over the last five years, that is when Erdogan went completely bananas, injecting Islamist and conspiratorial poison into the veins of economic policy.

After Turkey’s banking regulator BRSA relaxed some of the swap bans, financial flows poured in for a few weeks, but ceased almost completely in the last three weeks.

It is not clear to me or to any sane mind, HOW TL will rally, if no one is buying the darn currency?  To boot, Turkey has $185 bn of  FX debt maturing in the next twelve months.  Ohh, I just forgot, if these TL-loving analysts are correct, Turkey will also record a GDP growth of 4-6%, which will generate at least $60 bn of current account deficits, which also needs to be financed with a credit rating…oooo….. say 4-5 notches below investible?

Ok, I’m old and grouchy because I missed the GameStop bonanza.  Let’s forget everything I wrote and pretend that $50 bn of hot money will flow into Turkish markets, coupled with banks and corporates raising their FX debt roll-over ratios to…Uhhhmmm…200%.  Will TL rally?


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Nope, because Central Bank of Turkey has NET FX reserves of roughly MINUS $40 bn and if such sums were indeed to visit Turkish markets, we’ll hear the whirring sound of the large vacuum cleaner called “daily FX purchase auctions”, sucking up all the dollars in the market, thus preventing further currency appreciation.


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By the way, just a small technical note here, if dollar/TL were to drop to say 6.00 from the current level of 6.95-7.00, Turkish exports will not be hurt much, but Turks will buy so many cheap imported cars, Europe trips and  electronic gizmo that the currently TL-loving analysts shall start calling the current account deficit “unsustainable”.


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Finally, domestics are not switching to TL from their FX holdings. Those who look at official data see gold price and Euro/dollar exchange rate effects, not behavioral change by Turkish retailers and  companies. To understand WHY Turks will not de-dollarize at a deposit rate of 17%,  or 20%, or 25%, one simply needs to look to Ankara. People simply don’t trust Erdogan, who can decide to engineer inflation any time in the future. It took 10 years for FX deposits in total to rise to 50% from 32%, and the process will be symmetrical in the best case scenario, stupid!


PS:  Joe Biden will slap sanctions on Turkey, if Erdogan insists on keeping S-400s. But, decent economic analysts don’t cover politics, so the threat of sanctions play no role in their make-believe world.

By Atilla Yesilada




Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.