After President Recep Tayyip Erdogan ordered a new round of dismissal of the country’s central bank, the Turkish lira hit a record low overnight.
Erdogan issued a late-night decree to dismiss two deputy governors a few hours after meeting with the bank’s governor Sahap Kafjoglu.
One of them, Ugur Namik Kucuk, was the only objection in the bank’s seven-member monetary policy committee Cut interest rates According to two people familiar with the matter, this shocked international investors last month.
“He is the one who voted against the decision to cut interest rates, so this is a pity for him and the country,” said an Istanbul banker.
The banker added that Kuchuk also opposed the controversial policy of selling bank foreign exchange reserves to support the lira. This policy started in early 2019 and lasted until the end of last year.
The second deputy governor to be dismissed, Semitumen, has reported that he may be appointed to replace Kavcioglu.
The president also dismissed Abdullah Yavas, a longtime member of the Monetary Policy Committee, who was criticized by the Turkish media for living in the United States.
Lira, already Under pressure Due to the strengthening of the U.S. dollar and investor concerns about Turkey’s economy and foreign policy, it fell 1% to TL9.19 against the U.S. dollar in overnight trading. The currency has been hit hard for several years, depreciating 59% against the U.S. dollar since the beginning of 2018.
In European morning trade on Thursday, the exchange rate of the lira against the US dollar was 9.14 lire.
Erdogan, who has ruled Turkey for nearly two decades, has gained unprecedented control over the nominally independent central bank in recent years after taking measures to consolidate his power.
The president who opposed high interest rates clashed with a series of governors because he sought at all costs to prioritize high growth—including soaring inflation. Since mid-2019, he has fired the governor of the central bank and some other officials three times.
Reuters reported that the lira was under pressure last week Report Erdogan has lost confidence in Kavcioglu, who was appointed in March, even though he lowered the bank’s benchmark interest rate to 18% last month Annual inflation The operating rate is 19%.
The president’s communications director rejected this statement, and the meeting between Erdogan and Kafjoglu announced by the president’s office on Wednesday was interpreted by investors as support for the governor.
Kuchuk is a well-known figure in the international financial world. As the former chief economist of a private Garanti Bank, he often takes the lead in answering questions from foreign investors on monthly conference calls. Market participants were shocked by his absence from the meeting held last week.
Taha Cakmak, a former official of the state-owned Ziraat Bank and Turkish banking regulator, has been appointed as the new deputy governor. Yusuf Tuna, a scholar of Istanbul University of Commerce, was appointed as a member of the Monetary Policy Committee.
Hakan Kara, who had been the chief economist of the central bank until his dismissal in 2019, said that after his dismissal, the Monetary Policy Committee “had no traces of institutional memory”. But he added that “it is no longer necessary anyway” because the interest rate decision is no longer made by the bank itself.
Piotr Matys, a senior foreign exchange analyst at In Touch Capital Markets, said the reorganization “reinforces Kavcioglu’s position as president.” He predicted further interest rate cuts, which would exacerbate the further fall in the lira and trigger inflation.
“If the lira is severely overvalued, cutting interest rates will be a reasonable strategy,” he said. “However, this is not the case. At a time when global commodity prices are high and may rise further, Turkey needs a stable or even stronger currency.”