Turkish lira plunges 15 percent after central bank sacking

Turkish lira plunges 15 percent after central bank boss sacked
2 min read
The Turkish lira plummeted mere days after the central bank's governor was sacked and replaced.

The Turkish lira collapsed more than 17 percent on Monday after President Recep Tayyip Erdogan sacked the country's market-friendly central bank chief.

The currency fell to as low as 8.47 per US dollar in early trade Monday, having closed at 7.22 at the end of last week, after Naci Agbal was replaced by former ruling party lawmaker Sahap Kavcioglu during the weekend.

It later recovered slightly to sit at 8.09.

While a presidential decree on Friday did not explain why Agbal had been removed, it came just a day after the bank hiked interest rates more than two percentage points to 19 percent as it looked to fight inflation.

Kavcioglu has written columns for a pro-government newspaper heavily criticising Agbal's propensity to raise rates.

Read also: Turkey's Erdogan unveils economic reform plan

Analysts say 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 only appointed during an economic team overhaul that Erdogan engineered in 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 Governor 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 National Australia Bank's Rodrigo Catril.

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