The Turkish president, Recep Tayyip Erdoğan, fired and replaced the governor of the Central Bank after the fall of the Turkish lira and successive record lows against the dollar. Ο Erdogan relieved the governor of his duties, Murat Uushal, by presidential decree on Saturday, 7 November, appointing the former Finance Minister, Naji Agbal, without explaining the reason for his dismissal.
Ο Agbal becomes the third Governor of the Central Bank of Turkey in 16 months. Η Turkish lira fell by 30% against the dollar this year, which is the worst performing major emerging markets, raising the possibility of a repeat of a currency crisis similar to 2018. Losses have accelerated since the central bank decided to keep the interest rate at 10.25% in October. Most economists were expecting a two percentage point increase in September, the first in two years. Erdogan opposes interest rate increases saying that they are inflationary. With Agbal's appointment he hopes to further limit losses for the Turkish lira through higher borrowing costs.
Η Central Bank, instead of raising the benchmark interest rate, increased the average cost of borrowing for banks within the so-called interest rate corridor. Borrowing costs have risen to more by 13% from around 7.5% in July as the central bank suspended lending at lower interest rates. The Turkish government is using lower interest rates to trigger a boom in lending among consumers and businesses. However, the policy has widened the country's current account deficit following a surge in demand for imports.
Ο Turkish Finance Minister Berat Albiarak, Erdogan's son-in-law, said he is seeking a «competitive currency» to boost exports and economic growth. This week, he said Turkish authorities would not intervene in currency markets unless there was an emergency, and defended his father-in-law's policy, saying higher interest rates were hurting the economy, he said.
Investors warn that the central bank's failure to raise interest rates significantly could derail the economy. The benchmark rate is below the annual rate of consumer price inflation (11.9%). Earlier this week, Dutch bank Rabobank said it would probably need a rate hike of at least 5 percentage points to stabilise the pound. The Turkish lira fell to an all-time low of 8.5778 per dollar on Friday, losing in the week about 1.2% of its value.
Ο Agbal, 52, served as finance minister between November 2015 and July 2018, before becoming head of the Strategy and Budget Directorate at Erdogan's White Palace. He served as deputy secretary of the Finance Ministry between 2009 and 2015, earning the respect of foreign investors by helping reform the ministry and ensuring fiscal discipline. Monetary policymakers are due to meet again on interest rates on Nov. 19.
