Turkish Lira Sinks after Erdogan Ousts Central Banker
The Turkish lira plunged as much as 15% against the dollar on Monday, marking the day as its biggest intraday selloff since August 2018. The dive came after President Recep Tayyip Erdogan ousted the country’s Central Bank Governor late last week.
In a futile attempt to reassure the markets, the new top central banker, Sahap Kavcioglu, said on Sunday that controlling inflation is the bank’s main objective. The previous central banker had increased interest rates to higher-than-expected levels which resulted in him being replaced by Kavcioglu, a supporter of lower borrowing costs.
By changing personnel, President Erdogan sent a clear message that he does not want to maintain high interest rates to hold inflation back. Erdogan, who has fired three central bank chiefs in the last 21 months, maintains the unorthodox theory that high interest rates kindle rather than contain inflation.
Analysts identify a reversion of the Turkish government to getting rid of central bank governors because they disagree with the bankers’ hawkish interest-rate policy. The non-stop coming and going of central bank heads highlights how investors can never feel at ease with the economic state of affairs in Ankara.
In the wake of Turkey losing one of its last remaining institutional pillars, market specialists see foreign investors selling Turkish assets and local investors amassing dollars in expectation of low interest rates and accelerating inflation. Raised inflation destroys currency competitiveness and Turkey could soon find itself on the brink of another currency crisis.
Last year, pandemic-driven lockdowns and economic shutdowns caused investors to retract funds from many developing markets including Turkey resulting in the country spending billions of dollars to support the lira.
Follow the latest news on the Turkish currency and trade the lira with the Traders Trust clients’ preferred promotion, the 200% Deposit Bonus.
