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Turkish President Recep Tayyip Erdoğan removed the governor of the country’s central bank from his post after the lira’s currency hit historic lows, having lost 30% of its value since the beginning of the year.
The decision to replace Murat Uysal as governor was made by presidential decree and announced in the country’s official gazette early Saturday. It was not immediately clear why Uysal was removed.
The lira closed Friday at 8.544 against the US dollar, after a touching record low of 8.58, despite the dollar’s weakness as votes were still counted in the US election.
Erdoğan appointed then Deputy Governor Uysal to head the central bank in July 2019 when he fired his predecessor, Murat Cetinkaya, amid the president’s frustration that the bank had not cut interest rates to revive the economy. .
Erdoğan, a self-described enemy of high interest rates, has repeatedly called for lower borrowing costs. Last weekend, he said Turkey was fighting an economic war against those who squeezed it into the “devil’s triangle of interest, exchange rates and inflation.”
However, Turkey was at risk of a full-blown currency crisis like the one it suffered in 2018 unless the central bank adopts tighter monetary policy, Capital Economics warned this week.
Prof. Steve Hanke
(@steve_hanke)#BREAKING: The war of words between #French President @EmmanuelMacron is @RTErdogan continues, and so does the #Turkish trouble of lira. The #lira it’s toast. Direct for 9 to the dollar. This will continue to feed #inflation. Today I measure it at 48.49% / year. pic.twitter.com/QbpKZ2JD9H
“Foreign exchange reserves are precariously low and declining,” Capital said. “Turkey’s gross external financing needs are still very high due to the banking sector’s huge short-term external debt.
“We are increasingly concerned that the Turkish central bank will not provide the monetary tightening needed to boost investor confidence.”
Naci Agbal, an ally of Erdogan who was finance minister from 2015 to 2018, will be the new governor but it was unclear if he would be willing to raise rates.
Turkish newspaper Milliyet reported Thursday that Finance Minister Berat Albayrak had ruled out intervening in support of the lira, reiterating government concerns that rising interest rates could harm the economy.
In the last meeting of its monetary policy committee on 22 October, the central bank countered expectations of a sharp rise in interest rates and kept the key rate stable at 10.25%, causing the lira to lose large.
The bank, which also surprised markets a month earlier when it raised rates, said it will continue with liquidity measures to tighten the money supply. It raised the highest rate in its corridor, the late liquidity window, to 14.75% from 13.25%.
However, the lira continued to slide despite these measures, weakening by 30% against the US currency this year, making it the worst performer in emerging markets.
The downward trend against the lira stems from concerns over possible Western sanctions against Turkey, depleted reserves, high inflation and political interference in monetary policy.
Analysts fear that Turkey’s ties could suffer if Democrat Joe Biden becomes president of the United States.
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