Hong Kong: After President Recep Tayyip Erdogan fired the country’s market-friendly central bank governor, the Turkish lira fell by more than 17% on Monday.
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 at 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 wrote a column in a pro-government newspaper, severely criticizing Abar’s tendency to raise interest rates.
Analysts say the new central bank governor agrees with Erdogan’s unorthodox notion that high interest rates will lead to inflation.
Most economists believe that inflation slows inflation by increasing the cost of doing business.
Abar was only appointed during an overhaul of the economic team, and Erdogan overhauled the economic team in November to prevent a sharp decline in the Turkish currency.
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.