Turkey turbulence: Lira, stocks crash after central bank chief sacked

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People wearing masks walk on the street in Ankara, Turkey, on Aug. 7, 2020. Turkey reported 1,185 new COVID-19 cases on Friday, raising the total diagnosed cases to 238,450, Turkish Health Minister Fahrettin Koca said. (Photo by Mustafa Kaya/Xinhua)
(Photo by Mustafa Kaya/Xinhua)

dpa/GNA – Turkey’s currency and stocks plunged on Monday after President Recep Tayyip Erdogan sacked the central bank governor over the weekend, shocking foreign investors.

The lira briefly plummeted by 15 per cent, but was trading at 7.93 against the dollar, about 10 per cent down from Friday’s close. Earlier in the day, it was at 8.4 against the dollar.

The currency recovered some losses after Finance and Treasury Minister Lutfi Elvan said Turkey was committed to “free market rules and a liberal currency exchange regime,” in a bid to reassure markets and investors.

Turkey will maintain its macro policy and prioritize disinflation “until a permanent drop in inflation is achieved,” Elvan said in a statement.

Inflation is currently high at 15 per cent.

The Borsa Istanbul Index dropped 8 per cent and trading was halted twice as the sharp sell-off triggered circuit breakers, state news agency Anadolu reported.

Erdogan unceremoniously ousted Naci Agbal, a former finance minister, as governor early Saturday, after the bank raised the benchmark interest rate by 200 basis points to 19 per cent on Thursday.

The president holds unorthodox economic views and favours rate cuts, as opposed to market pressure for a hike to curb inflation. He has previously railed that Turkey was waging an economic war against the “devil’s triangle of interest and exchange rates and inflation.”

The new central bank chief, Sahap Kavcioglu, is a former member of Erdogan’s ruling Justice and Development Party (AKP). He is the fourth governor in two years. Agbal held the post for a mere four months.

Kavcioglu, also a columnist for pro-government newspaper Yeni Safak, has repeatedly criticized using interest rates to curb inflation.

The central bank’s next rate-setting meeting is scheduled for April 15.

All eyes will be on an AKP congress on Wednesday amidst speculation of a cabinet reshuffle.

“Looking ahead, policy-making is set to remain highly unpredictable and erratic as Erdogan is increasingly distant from reality and insecure about his ability to maintain power in the long run,” Wolfango Piccoli, co-president of research firm Teneo Intelligence, said in an emailed note.

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