Turkey’s Erdogan Fires Central Bank Officials, Fueling Economic Uncertainty

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Lira falls to record low after Turkish president’s latest intervention in bank

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Mr Erdogan sacked two of the central bank’s deputy governors, Semih Tumen and Usur Namik Kukuk, along with Abdullah Yavas, a member of the bank’s powerful monetary policy committee. Mr Tumen had been in his post since May, when he was appointed to replace another top official who was also fired by the president.

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The turmoil in Turkey’s economy, triggered by Mr. Erdogan’s own decisions, has increased political pressure on the government as the public struggles with devaluing wages and rising costs of basic goods such as food. Turkey’s economy has also been hurt by the COVID-19 pandemic and instability in the wider Middle East in recent years.

“It creates uncertainty and a great deal in trust and confidence in the central bank and economic management,” said Ibrahim Halil Canaki, a former under-secretary of the Turkish Treasury and currently an official of an opposition party, referring to the firing. .

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Mr. Erdogan dismissed officials for resisting their demands for lower interest rates, Mr. Canaki said. Turkey’s leader has called for lower interest rates as part of a strategy to stimulate economic growth.

The central bank cut its key policy rate, its one-week repo rate, from 19% to 18% in September after months of public pressure from Mr. Erdogan to make changes.

Mr. Erdogan abruptly fired the previous central bank governor, Nasi Agbal, after raising interest rates in an effort to control inflation. The current central bank governor, Sahp Kavakoglu, is a former legislator from Mr Erdogan’s party, who has in the past voiced support for lower rates.

The decision to sack the officers came after Mr Erdogan met with Mr Kavakoglu on Wednesday night.

The Turkish lira weakened against the dollar nine earlier this week and fell an additional 0.7% to 9.1541 on Thursday. Among the worst-performing currencies this year, the currency has lost nearly 20% of its value against the dollar.

The slide in the lira came as Mr. Erdogan on Monday threatened military action against Kurdish militants who killed two Turkish police officers in a missile attack in Syria. Turkey has launched several military operations in Syria since 2016.

Investors and analysts said they believe Turkey’s central bank will cut interest rates again by the end of the year, boosting inflation and causing concern for potential foreign investors.

“The point is, in the meantime, the Turkish lira keeps hitting new highs against the dollar. It feeds into inflation and you have this vicious cycle, where Erdogan keeps threatening cuts, the currency depreciates and it inflationary. Uday Patnaik, head of emerging market fixed income at legal and general investment management, said.

Turkey’s annual inflation rose to 19.58% in September, its highest rate in two and a half years, according to the country’s official statistics agency.

“Fundamentals continue to point to a higher lira, looking at external balances and painfully low reserves. The policies have not helped attract capital inflows,” said Kiran Kaushik, a forex strategist at Lombard Odier.

Jared Malsin at [email protected] and Anna Hirtenstein at [email protected]

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