The Turkish lira plunged more than 16% on Monday morning after President Recep Tayyip Erdogan fired the country’s central bank chief over the weekend, the third to be sacked in two years.
Naci Agbal, who has served less than five months at the head of Turkey’s central bank, had been raising interest rates to fight an inflation rate running above 15%. The period also saw an improvement in investor confidence and portfolio inflows of $ 10 billion, as well as lira appreciation of 18%. His monetary policy has been praised both by local and foreign investors. However, President Erdogan has been railing against interest rates, which he called “the mother and father of all evil.”
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A strategist at French bank Societe Generale Phoenix Kalen told the MarketWatch: “With Naci Agbal’s removal from the CBRT, Turkey loses one of its last remaining anchors of institutional credibility.” He added that “During his short tenure, Agbal had succeeded where various predecessors had not – in cultivating trust in the central bank’s inflation-targeting framework, in restoring monetary policy independence, in encouraging international investors to re-engage with the crisis-prone Turkish narrative, in driving an 18.0% rally in the lira against the dollar, and most crucially – in arresting and even reversing the damaging trend of dollarization in the economy.”
Erdogan gave no reason for Agbal’s dismissal, but it came just two days after the former central bank chief raised interest rates by 200 basis points. In a statement on Sunday, the central bank said it “will continue to use the monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation.”
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