HONG KONG – The Turkish lira collapsed more than 17% today after President Recep Tayyip Erdogan sacked the country’s market-friendly central bank chief.
The currency fell to as low as 8.47 per United States dollar in early trade, having closed at 7.22 at the end of last week, after Naci Agbal was replaced by former ruling party lawmaker Sahap Kavcioglu over the weekend.
It later recovered slightly to sit at 8.09.
While a presidential decree on Friday did not explain why Agbal was removed, it came just a day after the bank hiked interest rates more than two percentage points to 19% as it looked to fight inflation.
Kavcioglu has written columns for a pro-government newspaper heavily criticising Agbal’s propensity to raise rates.
Analysts said the new central banker subscribes to Erdogan’s unorthodox belief that higher interest rates cause inflation.
Most economists believe it slows inflation down by raising the cost of doing business.
Agbal was appointed during an economic team overhaul that Erdogan engineered last November to halt a steep Turkish currency slide.
The lira had by then fallen to 8.5 per dollar from 5.9 at the start of 2020, as past central bank managers kept interest rates low while inflation picked up.
Investors took fright at Friday’s move, which has thrown the independence of the bank into question and raised fears of a new bout of financial turbulence in the country.
“Erdogan’s decision to fire Agbal, who had sought to instil some price stability and perception of bank independence, now raises questions as to whether the new governor will look to lower rates while still aim to fight higher inflation,” said the National Australia Bank’s Rodrigo Catril. – AFP, March 22, 2021
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