Mar 22, 2021 - World

Central bank firing may deal "fatal blow" to investor confidence in Turkey

Data:; Chart: Axios Visuals
Data:; Chart: Axios Visuals

The value of the Turkish lira fell by more than 15% against the dollar, reaching 8.48 lira per dollar after President Recep Tayyip Erdoğan fired yet another central bank governor over the weekend.

What happened: Now ex-governor Naci Ağbal was relieved of his duties after a surprise 200 basis point increase of Turkey's interest rates last week as part of an effort to restore the credibility of the country's monetary policy and bring down inflation.

  • The currency had strengthened to 6.96 lira per dollar as recently as Feb. 21 thanks to Ağbal's embrace of orthodox monetary policies.

How we got here: Erdoğan fired central bank governor Murat Cetinkaya, who was seen as credible in the eyes of the market, in July 2019 and replaced him with Murat Uysal, who was seen as essentially an Erdoğan puppet.

  • Uysal was replaced in November 2020 by Ağbal after inflation surged and the lira hit its weakest ever against the dollar.
  • Also in November, Turkey's minister of finance and treasury, Berat Albayrak, Erdoğan's son-in-law, announced on Instagram that he would step down from both roles to spend more time with his family.

Where it stands: "The shock firing of central bank chief Ağbal over the weekend may deal a fatal blow to investor confidence in Turkey," Win Thin, global head of currency strategy at Brown Brothers Harriman, wrote in a note to clients.

  • "After regaining investor confidence with a series of aggressive rate hikes, Turkey has snatched defeat from the jaws of victory."

Between the lines: "At this point, it doesn’t matter who Ağbal’s replacement is or what they say, as it’s clear that Erdoğan is running the show," Thin continued. "USD/TRY is likely to test the all-time high near 8.58 from November, and could even surpass it."

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