Turkish Lira Tumbles After Sacking of Central Bank Head

The Turkish lira plunged around 11 per cent on Monday after President Recep Tayyip Erdogan fired the central bank governor and appointed a critic of high interest rates, a move sparking turbulence in markets.

The lira was fluctuating at 8.02 against the US dollar in the Monday morning trading, a sharp decline from Friday's closing level of 7.22, while the Turkish currency was also down 11 per cent against the euro, reports Xinhua news agency.

On Saturday, Erdogan abruptly removed Naci Agbal from the post of the central bank governor with a presidential decree, nearly five months after his appointment to the post.

The dismissal followed a 200 basis point interest rate hike imposed by the central bank on March 18 to fight double-digit inflation, with the benchmark policy rate rising to 19 per cent.

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A man waves a Turkish flag in front of Ataturk Airport during an attempted coup in Istanbul Reuters

Agbal, who served as the Finance Minister between 2015-2018, increased the benchmark interest rate by a total of 875 basis points in several hikes since he took the helm in November 2020, trying to restore monetary discipline in the emerging market.

He was replaced by Sahap Kavcioglu, an economist and columnist who becomes Turkey's fourth central bank chief since July 2019.

On Sunday, Kavcioglu, also a former lawmaker from Erdogan's ruling Justice and Development Party, held an online conference with heads of private and public lenders and pledged to use monetary policy tools to deliver price stability.

Conflict Over Inflation

Turkish President Tayyip Erdogan
Turkish President Tayyip Erdogan Wikimedia Commons

Erdogan, who believes that high-interest rates would cause rather than curb inflation, has frequently said he is opposed to it.

Likewise, the new bank governor, Kavcioglu, is reportedly also against rate rises.

Analysts have said that the surprising move will likely harm investors' confidence in the Turkish economy.

As Turkey's inflation reached 15.6 percent in February, its highest since mid-2019, the government wants to bring the annual inflation to below 10 per cent by the end of 2022.

Erdogan recently announced a new economic strategy, vowing to prioritise the fight against the rise in consumer prices and bring inflation back down to single digits.

Since a currency crisis in 2018, Turkey has experienced economic and geostrategic difficulties.

The Covid-19 pandemic also exacerbated its financial woes.