The Turkish lira plunged 17% against the dollar on the foreign exchange market – hitting at its worst the value of 8.17 while a week ago the exchange was at 7.5 dollars – after the ouster of the head of the central bank Naci Agbal, a former finance minister considered very close to President Recep Tayyip Erdogan and put at the helm of Turkish monetary policy to win the fight against inflation, which is one of the country’s great problems. But his recipe, raising rates, was obviously not liked. The announcement of his deposition does not make public the reasons for the decision, but comes a few days after the order to raise the cost of money by two points, reaching 19%. He had been in office for five months. It is the third central banker put out in the last two years.
Yet another change of the guard
Agbal, whose appointment had been applauded by international markets, is replaced at the helm of the central bank by Sahap Kavcioglu, a representative of the ruling party who took office by announcing that he will do all he can to fight inflation, which today in Turkey travel at 15%. He is a university professor and known for his support of the economic theory espoused by the president. Erdogan has repeatedly expressed his opposition to the use of the rate hike as a weapon to lower inflation, indicating strong growth with cheap money as the main way out of the crisis.
The fears of the markets
A belief that, judging by the collapse of the Turkish lira after the announcement, worries international markets, also worried about the future independence of the Turkish central bank. Finance Minister Lutfi Elvan today declared that Turkey will maintain the free trade regime, despite the collapse of the lira. These statements have only mitigated the fall in the markets and the exchange rate. The Istanbul Stock Exchange suspended trading due to excess downside twice in the morning of March 22nd. For Edward Al-Hussainy, an analyst at Columbia Threadneedle, undoing what was briefly an appropriate macro policy will be painful and will affect Turkish assets.