Central Bank decisions: Accumulating reserves for the economy, preparing to eliminate Mansur Yavaş

The Central Bank of the Republic of Turkey has taken new decisions to prevent the depletion of foreign exchange reserves and to accumulate reserves once again. The decisions were published in the Official Gazette dated Saturday, May 3, 2025.

Let us first summarize the decisions. Then, we will interpret them.

The reserve requirement ratios for foreign currency deposits have been increased by 200 basis points across all maturities, and the reserve requirement ratio for funds obtained from repo transactions in foreign currency with a maturity of up to one year made to domestic residents has been increased by 400 basis points.

Meaning and purpose: The Central Bank will withdraw nearly 4.5 billion dollars in foreign exchange liquidity from the foreign currency deposit reserves held by banks.

With the change made to the export circular, the minimum rate for the sale of export proceeds to the Central Bank has been set at 35 percent. (This rate was raised to 60 percent during the Kavcıoğlu era, then gradually reduced, and was lowered from 30 percent to 25 percent on March 5.)

Meaning: To increase the Central Bank's foreign exchange reserves by seizing one-third of the foreign currency earned by exporters.

Why does the Central Bank want to increase foreign exchange? Under normal circumstances, the answer is: To have reserves sufficient to cover the country's external debt payments with a maturity of less than one year and its imports, and to protect the economy against external shocks.

There are no normal circumstances in the New Turkey anymore. Turkey used to have a current account deficit, but the ratio of the current account deficit to national income during the AKP era has increased approximately 10-fold. Our external debt is ballooning, and our imports are rising. In such an economy, the people are being squeezed to accumulate reserves. For the last two years, we have accumulated reserves by offering the world's highest real interest rates to foreigners and hot money.

While the interest rate offered on the dollar globally is around 4 percent annually, we promised foreigners and locals who had moved their money abroad: “Bring your dollars, convert them to Turkish Lira, and we will give you 50 percent interest. We will keep the dollar stable, it will increase by at most 10-15 percent, and you will earn a 35-40 percent real interest rate on your dollars.” The Turkish people paid this interest by enduring high inflation, paying indirect taxes, and tightening their belts. Some foreign exchange reserves were accumulated. Foreign exchange reserves reached up to 65 billion dollars net, excluding swaps.

Supposedly, these reserves were going to protect us against external shocks. What external shock? Our internal shocks are enough for us. As a result of the legal coup carried out for the sake of political ambition, everything was ruined. Ekrem İmamoğlu and his colleagues were arrested. The Central Bank's foreign exchange reserves began to melt rapidly. In the last 40 days, reserves fell from 65.6 billion dollars to 16.4 billion dollars. You will see the dramatic drop in foreign exchange reserves in the graph at the end of the article.

The government and its supporters are engaging in cheap polemics like, “There is corruption, shouldn't we do anything about it?” If there is corruption, you document it. I do not know whether Ekrem İmamoğlu and his colleagues committed corruption. But I do know this.

Recently, former CHP deputy and finance expert Aykut Erdoğdu compared the budgets used and services provided by AKP-run municipalities in Istanbul with the budget used and services provided by İmamoğlu in five-year periods. When we compare these, the expenditures of the AKP era need to be scrutinized in detail.

There are enough allegations of corruption from the AKP era to fill volumes of books if I were to try to write them here. The December 17-25 audio recordings, the Yunus Emre Foundation corruption, the Red Crescent corruption, the Anka Park scandal during the Melih Gökçek era, nearly 300 amended tender laws, and a pile of supporters who have become wealthy for no reason in society. You cannot say “we are letting the law work” with unproven, undocumented allegations without any investigation into these. It is not credible. And since it is not credible, this many reserves have melted away. Interest rates have risen when they should have been falling. Now, we will continue to pay even higher interest on the dollar to accumulate reserves again.

The Treasury's borrowing costs have increased. We will pay this interest again. The Turkish Lira cost of external debt has increased. The cost increase of the portion of external debt belonging to the private sector will return to us as inflation through private sector price hikes. The bill for the cost increase of the state's external debt in Turkish Lira will return to the nation as new taxes.

In the first days of the week of March 19, I wrote an article titled "The Price of Ambition." According to initial estimates, I predicted that the cost of this to the economy would be around 80-90 billion dollars. However, they are determined not to turn back from their mistake. Let alone a trial without arrest, they even went for a second wave in the municipal operation.

The melting of reserves cannot be stopped. In addition to the exit of foreigners, the demand for foreign currency and gold has not stopped despite the rising interest rates in the country. Inflation cannot be lowered. Interest rates will continue to remain high for some time. High interest rates mean the state pays more interest, citizens pay more taxes, provide fewer services, the ongoing contraction in industry continues, and unemployment increases.

The price of this political ambition seems likely to rise from 80-90 billion dollars to 120-130 billion dollars. While we have not yet paid the approximately 120 billion dollar bill for the earthquake that affected 10 provinces two years ago, we are talking about a bill of nearly 120 billion dollars for no reason.

While all this was going on, the President and AKP Chairman said at the group meeting, “Let's see how many more CHP members will be eliminated on the path to presidential ambition.”

Naturally, the question “Is Mansur Yavaş next?” came to everyone's mind.

While the İmamoğlu operation was being carried out, the thought had crossed my mind: “There is still a long time until the presidential election. Why did he act so early to burn Ekrem İmamoğlu?”

Upon the statement “Let's see how many more CHP members will be eliminated on the path to presidential ambition” and the Central Bank's intention to accumulate foreign exchange reserves again, I feel as if I have found the answer to this question.

I guess some time is needed for the second move, which is why he started so early…

The reserves accumulated over two years were burned for Ekrem İmamoğlu. Although I do not know how much the President cares about Central Bank reserves to neutralize his political rivals. But right now, Central Bank reserves are not available to carry out an operation against Mansur Yavaş.

Therefore, when evaluating the latest decisions taken by the Central Bank to accumulate reserves again, I estimate that there are two possibilities:

A- To strengthen the economic outlook…

B- To prepare for the Mansur Yavaş operation…